Korea Development Bank jumped back into the dim sum bond market on Tuesday, raising another Rmb1.3 billion ($203.4 million) by issuing its second three-year renminbi-denoninated bond in three months.
KDB, rated Aa3/AA-, priced the deal to yield 4.2% after receiving a positive feedback from Asian investors, according to a source familiar with the matter, who declined to comment on the size of the order book. The final pricing was unchanged from initial guidance, based on a term sheet seen by FinanceAsia.
Foreign sovereign and quasi-sovereign issuers like the KDB and government of Mongolia are increasingly tapping the offshore renminbi bond market as they try to diversify their source of funding away from the US dollar market and trim their borrowing costs.
Leading corporate borrowers from a range of developed markets, including France and Australia, have this year also been actively raising money via the dim sum market, filling the gap left by Chinese names as these have returned onshore, coaxed by a succession of Chinese interest rate cuts.
BNP Paribas is the sole bookrunner on KDB's latest transaction.
The closest comparables to the new KDB renminbi paper are KDB’s 3.55% June 2018 and 4.1% August 2018 bonds, which traded at 99.125 and 100.375, respectively, ahead of pricing, people familiar with the deal said. Both bonds were yielding around 3.91%.
Korea sovereign and quasi-sovereign papers in the secondary dim sum market are trading between 3.8 to 4% across the curve, reflecting tight liquidity conditions, the two market sources added.
Dim sum dip
In the absence of Chinese corporate supply, borrowers globally – mostly quasi-sovereign and sovereign – have raised more than $17 billion through 197 offshore renminbi bond issues so far this year, compared with almost $30 billion and 146 deals in the same period last year, Dealogic data shows.
“KDB’s latest sale should attract buyers out of Asian banks but rising funding costs due to a lukewarm trading in the secondary market will make them less aggressive in buying,” said one of the two people familiar with the deal, who declined to be named because it was a live transaction.
“For long-term investors, KDB's bond is more attractive than [China Construction Bank's] existing 4% 2017 bond as it offers a higher coupon rate with a similar credit profile,” said a Hong Kong-based credit analyst who declined to be named.
According to Dealogic, KDB is ranked the second-most active Korean borrower in the offshore renminbi bond market, raising almost $500 million in seven deals this year. Export-Import Bank of Korea, or KEXIM, is the most active Korean issuer and sold more than $1 billion via 13 transactions.
In a November 3 note to client, credit ratings firm Moody’s warned that KDB and KEXIM face increasing levels of asset risk in their roles as policy banks, citing their Krw4.2 trillion ($3.64 billion) support to troubled shipbuilders Daewoo Shipbuilding and Marine Engineering.
"Since the 2008-09 global financial crisis, KDB and KEXIM have been increasing their support to financially troubled corporates in sectors that are economically important for Korea and this latest announcement is further evidence of this process," Sophia Lee wrote in the note.
"But such support has -- as indicated -- increased asset risks for both banks even though it has helped the corporates avoid major disruptions to their operations,” Lee said.
UOB to sell covered bonds
Elsewhere, United Overseas Bank is set to become the next issuer from Singapore to sell covered bonds after DBS Bank established a benchmark with its $1 billion three-year offering.
“We are confident that UOB’s covered bond programme will set a new benchmark in the capital market for other financial institutions in Singapore and Asia,” said Pierre Rousseau, head of global markets, Asia Pacific, at BNP Paribas, which is helping UOB to manage the deal.
UOB’s debut issuance is part of its newly established $8 billion covered bond programme, which can only consist of loans backed by residential properties in Singapore and Singapore government bonds.
Assets which are typically of higher credit risk, such as commercial mortgage loans, are not allowed, according to Moody’s.
Covered bonds are a type of fixed income securities, which are backed by an asset pool (normally residential mortgages) and remain on a bank's balance sheet unlike other forms of securitised debt. Their overcollateralisation means they attract a higher credit rating and lower cost of funding than senior debt, albeit one that tiers assets.
A spokeswoman at UOB declined to comment on when the covered bond will be launched to the market.