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Hyundai Capital Services, the financing arm of Korea’s biggest auto maker, sold $500 million of five-and-a-half-year bonds yesterday. The issue was priced late in the New York trading day and met strong demand from funds across Asia, Europe and the US.
The primary market for Asian credits remains buoyant despite concerns ahead of Thursday’s vote by private bondholders on Greece’s proposed debt reduction.
According to Morgan Stanley research, there has been $23 billion of US dollar bond issuance from Asian borrowers in the first two months of 2012, which is a record for the region.
Several Korean policy and commercial banks have already raised cash in the markets, but less familiar issuers are also rumoured to be approaching investors. These include GS Engineering & Construction and Lotte Shopping.
Hyundai Capital’s senior, unsecured notes were sold under the SEC’s Rule 144a, and were drawn from Hyundai Capital’s $5 billion global medium-term note programme. They are rated Baa2 (with a positive outlook) by Moody’s Investor Services and a notch higher at BBB+ by Standard & Poor’s.
The bonds pay a 3.5% semi-annual coupon and were re-offered to investors at 99.629 to yield 3.575% to a maturity date of September 13, 2017. The yield was equivalent to 275bp over US Treasuries.
Early price guidance was for a spread of 290bp, which an analyst unconnected to the deal had described as “reasonable value, but probably not enough to promise much upside”. The spread premium at that level would be about 10bp to 15bp wider than the company’s existing 2016 issue, offering little in the way of new issue premium or additional margin for the longer tenor.
But, by late afternoon yesterday, the joint boookrunners, Bank of America Merrill Lynch, BNP Paribas, Citi and J.P. Morgan, had tightened final guidance to a range between 275bp and 280bp over Treasuries. The deal size had been capped at $500 million, whatever the strength of demand for the issue.
The issue received orders from 272 accounts totalling $4.4 billion. Allocations were evenly split between Asia (43%) and the US (38%), with European accounts buying the remaining 19%. By investor type, fund and asset managers bought 64% of the bonds, commercial and private banks took 27%, company treasuries 4% and insurance companies 5%.
Hyundai Capital intends to use the proceeds of the bond issue for general corporate purposes.
The company was set up in 1993 and supplies financing for motor vehicles as well as other consumer products in Korea. It reported consolidated assets of W22 trillion ($19 billion) at September 2011.
The firm has “adequate fundamentals, given its good franchise in domestic auto-financing businesses as well as its good financial performance for the past several years,” wrote Youngil Choi, a Moody’s vice-president and senior credit officer in a note yesterday.
In addition, its two major shareholders Hyundai Motor and GE Capital, both provide sufficient support, according to Moody’s. In particular, Hyundai Capital's auto finance business is strategically important to Hyundai Motor — Korea’s leading carmaker — as its captive finance company.
The firm’s financial leverage fell from 7.6x at the end of 2010 to 7x in September 2011, but Moody’s warned that the company has a heavy reliance on wholesale and short-term funding, which could have an adverse effect if liquidity in capital markets dries up.
