Asian debt capital markets normally kick off the year with a benchmark offering from one of Korea's two main policy banks and 2016 has proved no exception with a $1.5 billion dual tranche offering from the Korea Development Bank (KDB) on Wednesday.
The transaction was launched into the market just as the North Korean government announced a "national epoch making event" following the purported denotation of a miniaturised hydrogen bomb.
In 2006 the country's first nuclear test had a damaging impact on financial markets but reaction to the latest move was muted and syndicate banks said demand for KDB's bond was completely unaffected.
The domestic equity and currency markets also both fell only marginally over the course of Wednesday, with the Kospi closing down 0.3% and the won down 0.8% to the dollar.
The driving force behind demand for the new deal were Korean life insurance funds. "Demand was skewed to the 10-year tranche because of them," said one syndicate banker. "They thought it held value in Korean won on an after-swap basis."
The order book for both the five- and 10-year tranches reached a peak size of $6.25 billion before price guidance was revised, with final demand falling to $2 billion for the five-year tranche and $2.7 billion for the 10-year. This final demand level was slightly below the $6 billion that the Export Import Bank of Korea (Kexim) achieved one year ago when it kicked off 2015 fundraising with a $2.25 billion twin tranche deal.
More recently, KDB achieved a $2.1 billion order book for its $750 million 10-year issue in September, while Kexim amassed $7.5 billion in demand for a $1.75 billion two-tranche offering in early November.
Price guidance for KDB's $500 million five-year tranche was revised down 17.5bp from 100bp over Treasuries to 2.5bp either side of 85bp. Final terms comprised an issue price of 99.986% on a coupon of 2.5% to yield 2.503% or 82.5bp over Treasuries.
The strong bid for the $1 billion 10-year tranche led to more aggressive tightening of 22.5bp from initial guidance around 110bp over Treasuries. Final pricing was fixed at 99.401% on a coupon of 3% to yield 3.07% or 87.5bp over Treasuries.
Syndicate bankers said pricing on the 10-year could have been pushed further even though the Aa2/AA-/AA- credit had come through its outstanding curve.
Distribution stats show that 166 accounts participated in the five-year tranche with a split 65% Asia, 18% Europe and 17% US. By investor type, asset managers took 37%, banks 32%, insurers 12%, central banks 11% and others 8%.
Where the 10-year tranche was concerned, 150 accounts participated of which 88% came from Asia, 7% from Europe and 5% from the US. By investor type insurers took 62%, asset managers 18%, banks 16% and others 4%.
The closest benchmark is its 3.75% September 2025 deal, which was trading on a T-spread of 90bp and G spread of 91bp at the end of the Asian trading day on Wednesday. Bankers said the curve was worth no more than 1bp, which means the deal has come about 3.5bp through on a like-for-like basis.
The five-year was benchmarked against the credit's 2.25% May 2020 deal, which was trading on a T-spread of 67bp and G-spread of 80bp. Again bankers said the eight-month curve extension was worth about 1bp, which means the new deal has ceded 1.5bp on a like-for-like basis.
At the time of pricing Kexim's 2.625% December 2020 bond was bid at 79bp over on both a T- and G-spread basis, while its 3.25% November 2025 bond was bid at 88bp over, also on a T- and G-spread basis.
The Korean policy banks all now have the same rating from the three agencies since Moody's upgraded them en masse from Aa3 to Aa2 in December. Three months earlier, Standard & Poor's also upgraded them all from A+ to AA-.
The biggest beneficiaries were investors who purchased KDB's 10-year bond, which launched in mid-September ahead of the upgrade and at a time when credit markets were also still impacted by China's stock market crash over the summer. This bond priced to yield 3.392% or 115bp over Treasuries and was trading Wednesday on a mid-yield of 3.08% and 90bp over Treasuries.
Joint global co-ordinators for the new SEC-registered transaction were: Barclays, Bank of America Merrill Lynch, Citi, Credit Suisse, HSBC, KDB Asia, Mizuho and Soc Gen.
This article has been updated since first publication with final distribution statistics.