Asia’s investment-grade borrowers have had a slower start this year, with much of the bond issuance so far skewed towards high-yield. But Korea Development Bank (KDB) redressed the balance early Wednesday morning when it closed a $1 billion dual-tranche bond, offering investors the chance to diversify away from the flood of Chinese real estate paper.
It was the second Korean borrower to tap the bond market after Kookmin Bank issued $300 million last week. And while most of the borrowers have been tapping the Reg-S market, KDB tapped the onshore US market with an SEC-registered deal that was split evenly between the three-year and five-year bonds.
The terms were aggressive, with KDB paying the lowest coupon ever for three- and five-year paper out of Korea (excluding the Samsung Electronics dollar bond, which was marketed as a high-grade US borrower).
The leads — Barclays, Bank of America Merrill Lynch, Daiwa, Goldman Sachs, HSBC, KDB Asia and UBS — started off with a fairly aggressive pricing with initial guidance for the three-year and five-year bonds at the area of Treasuries plus 90bp and 110bp, respectively.
They eventually priced at Treasuries plus 80bp and 97.5bp, respectively, so there was no sharp tightening in guidance. Demand for each tranche reached $1.5 billion, not exactly overwhelming compared to the demand for recent high-yield prints.
However, according to a source, the fact that the leads went out with a tight guidance in the first place meant that there was “little fluff” in the books and the demand that came in could be allocated.
In particular, the three-year tranche saw strong demand from US investors, which were allocated 63% of the bonds. European investors were allocated 20% and the rest went to Asia. By investor type, funds were allocated 56%, public institutions and central banks 23%, banks 15% and the remaining 6% went to private banks and other accounts.
For the five-year tranche, US investors were allocated 44% of the bonds, Asian investors 32% and European investors took the remaining 24%. By investor type, funds were allocated 46%, public institutions and central banks 16%, banks 29%, insurers 4% and the remaining 5% went to private banks and other accounts.
In secondary markets, the bonds held up and were wrapped around reoffer, despite pricing through their secondary curve, according to a source. The KDB 2016s were quoted at 90bp over two-year Treasuries — which worked out to be roughly around reoffer — while the 2018s were quoted around Treasuries plus 97bp. The three-year bonds paid a coupon of 1% and the five-year bonds paid a 1.5% coupon.
Elsewhere out of Korea, Hana Bank has mandated Bank of America Merrill Lynch, Barclays, Credit Agricole CIB, HSBC and Standard Chartered to arrange investor meetings in Asia, Europe and the US starting during the week of January 21.