Hyundai Motor has emerged as one of the more sophisticated and frequent borrowers in the global market place. And last week’s sale of $500 million of five-and-a-half-year 144A/Reg-S bonds added another tick to its tally.
This is the second time this year Hyundai has come to the dollar market after it priced a $500 million five-year security back in April. And with an April 6, 2016 maturity date, the new notes will mature almost one year after the existing April 2015 bonds.
The new notes pay a 3.75% coupon and were reoffered at 99.793 to yield 3.792%. This was equal to a spread of 250bp over the five-year Treasury yield.
The most unique aspect of this credit is that it was issued by Hyundai Capital America with Hyundai Motor Company acting as guarantor. This meant that it was able to ride on the strong reputation of its US franchise, which is a regular borrower in the US market.
“When we do a normal Korean trade, the accounts that are mainly targeted are the emerging market investors,” said one banker involved in the transaction. “Because (this) issuer is a US entity, we made a conscious effort to line up a lot of high-grade investors that typically don’t buy Korean bonds.”
The bookrunners (Barclays Capital, Citi, HSBC and J.P. Morgan) specifically targeted US investors of both high-grade and emerging market portfolios.
With an order book of $6.5 billion split across 380 accounts, there was no mistaking the strong demand for the Hyundai name, particularly from US investors that took 67% of the deal. Asian investors bought 22% and 11% went to Europe. Such a large contribution from the US ultimately allowed the bookrunners to reprice the Hyundai Capital secondary curve.
When the bookrunners began to market the deal, the existing April 2015 bonds were quoted at Treasuries plus 240bp. And with a one-year extension for the new bonds, they calculated the curve between the two to be worth between 20bp and 30bp, leading to a fair value of around 265bp over five-year Treasuries.
However, the strong investor demand allowed them to price 15bp tighter at 250bp.
“We were confident of printing through the existing curve, because we had very positive feedback from the US accounts during the roadshow,” said one banker. “Ultimately what was more pleasing for us was that we repriced the entire secondary curve,” added the banker.
For US accounts that did not look at other Korean credits to gauge the value, another benchmark was a recent January 2015 bond from Japan's Nissan, which was trading at Treasuries plus 170bp at the time Hyundai priced its 2016s.
Fund managers were allocated 55%, insurance companies 26%, retail investors 9%, banks 5% and corporate and other types of investors 5%.
Once the bonds started trading, Asian investors that were initially scared off by the aggressive pricing strategy perked up and started looking for bonds to buy. However, there was little actual trading done in the existing 2015 bonds and the new 2016s changed hands around the re-offer price.
The notes were rated Baa2 by Moody’s and BBB- by Standard and Poor’s.