The Industrial Bank of Korea (IBK) is bringing is long-awaited dollar deal, embarking on a back-to-front roadshow schedule, which sees it start in Europe on Friday, before moving to Singapore on Monday, Hong Kong Tuesday and then pricing Wednesday.
There are now three leads, Credit Suisse First Boston, Goldman Sachs and Salomon Smith Barney, with no other syndicate members. Back in May, the deal was originally mandated to CSFB and Merrill Lynch, but the latter subsequently departed after being disciplined by the Korean FSS for allegedly front-running research recommendations. The loss will be particularly painful for Merrill, which has long been considered IBK's house bank and led both of its previous international debt issues.
These comprised a $200 million four-year issue in September 1997 and a $350 million issue one year later, which falls due this September and will be replaced by the new deal. Pricing of the 1998 transaction came at 30bp over the KDB curve, but the differential narrowed in time to about 10bp over.
This time round, the leads will be hoping to price as flat as they can to KDB and are likely to have been buoyed by the reception Kepco received late last week for its $650 million five-year issue. This priced about 10bp back off KDB on a like-for-like basis, roughly 7bp through analysts' expectations.
The positive momentum generated by Kepco should feed through to IBK, which is an infrequent international issuer with greater novelty value. Lead managers are also likely to be hoping to tap into the abundant credit lines open to IBK and given the deal's short maturity, Asian banks should be aggressive bidders for paper.
By bringing a fixed rate issue, however, the bank will also appeal to some funds. And while a loan would undoubtedly be cheaper, the policy bank is said to have chosen a bond because it wants to maintain a public benchmark.
The one slight pricing overhang IBK will need to deal with stems from its split rating. With an A3/BBB+ rating, the bank is rated one notch lower than the sovereign ceiling by Standard & Poor's. The differential has long irked both the borrower and its bankers, who argue that all three policy banks have the same level of government support written into their individual acts. The only difference is said to be the English translation of the IBK act, which differs very slightly. IBK, which is 82.3% government-owned, was founded in 1961 and lends to the SME sector.
The most comparable benchmark is KDB's 5.25% November 2006 bond, which has a one-year longer maturity and closed Asian trading Wednesday at 104.61% to yield 4.03% or 93bp over Treasuries.
In a research report published yesterday, however, Barclays sounded a note of caution. "Korean US dollar credits already suffer from a lack of cross-currency asset swap opportunities as they trade inside comparable Korean Won denominated Korean bank credits on a cross currency asset swap basis," it wrote. "As we expect supply of at least $3.5 billion during 2H2002 from Korean issuers and the fact that excess liquidity holdings among Korean banks is diminishing rapidly, all of these factors will in our opinion contribute to a continuing underperformance of Korean credits vis-a-vis other Asian credits."
Slightly further down the pipeline, Woori Bank has already mandated a $200 million to $300 million short-term bond deal via ABN AMRO, Barclays and BNP Paribas. KDB itself has also said that it is looking a new financing opportunities and hopes to raise a further $500 million from either the loan or bond markets later this autumn.
