Hyundai hits market with $500 million benchmark deal

Hyundai Motor Company aggressively prices a five-year $500 million benchmark deal amid a global downturn in the auto industry.

Hyundai Motor Company yesterday raised $500 million from the sale of five-year bonds. The notes were issued by Hyundai Motor Manufacturing Czech with the parent, Hyundai Motor Company, as guarantor to the sale.

The Reg-S/144A senior unsecured fixed-rate notes paid a coupon of 4.5% and were re-offered at 99.699 to yield 4.568%. The maturity date has been set to April 15, 2015.

The bookrunners went out with a price whisper in the low 200bp area and, when the formal announcement of the deal came on Monday afternoon Hong Kong time, initial guidance was set at 210bp over the equivalent five-year US Treasury yield. Based on strong investor feedback, the arrangers decided to revise this to a final guidance of Treasuries plus 205bp at the start of European trading.

In the end, the bonds priced well inside that at 197.5bp over the equivalent US Treasury yield, indicating very strong investor interest in the Korean carmaker's debt. In fact, the deal was 9.2 times oversubscribed -- with a total order book of $4.6 billion from 291 accounts.

US offshore investors accounted for 45% of the demand, Asian investors for 35% and European accounts for 20%. Fund managers bought 60%, banks 17% and insurance houses 15%, while other investors took up the remaining 8%.

The investment-grade company last came to market in October 2009 with a $500 million six-year bond issued by Hyundai Capital Services. That recent issue, due in 2015, was used as a benchmark for the pricing. Other bonds that Hyundai's new April 2015 bonds were compared to were the 2015 bonds issued by GS Caltex and Nissan Motor Company respectively.

At the close of Asian trading Tuesday, the Hyundai bonds had tightened to Treasuries plus 184bp. By comparison, the Hyundai Capital 2015 bonds were trading at a spread of 202.4bp, GS Caltex 2015 at 196bp, and Nissan 2015 at 183.4bp. All the comps are quoted off the five-year US Treasury yield.

Hyundai held a non-deal roadshow at the beginning of March, but at the time gave no public indication of if and when it would look to come to market. In the end, it all happened rather quickly. The announcement of the mandate through to pricing all fit in a tight 24-hour window.

A source close to the deal said the purpose of the quick execution was "to build rapid momentum, minimise execution risk and take advantage of a strong market window" that had come about as a result of the relief over Greek sovereign risk.

Hyundai was announced to the market at the same time as Bank of China (Hong Kong) announced a tap of its recently issued 2020 bonds (see separate story on our website today). Both bonds were able to take advantage of a stable market backdrop with Asia opening firmer across the board on Monday. Essentially, the headlines over the weekend about the European Union's and International Monetary Fund's joint €30 billion ($40.8 billion) bail-out package for Greece created a window of opportunity for the two Asian issuers to come to market swiftly and tap into revived investor confidence in the debt markets.

Hyundai also benefitted from the scarcity value of being a pure corporate investment grade issuer from Korea. As such, the "bookrunners were able to aggressively position Hyundai's improving credit fundamentals and strong operational performance amidst a global downturn in the auto industry", one source said.

Barclays Capital, Bank of America Merrill Lynch, Citi, Goldman Sachs and Nomura were joint bookrunners. The notes were rated Baa3 by Moody's, BBB- by Standard and Poor's and BB+ by Fitch.

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