Lead arrangers ABN AMRO, Barclays Capital, Deutsche Bank and Tokyo-Mitsubishi International have launched a $400 million term loan and FRN facility for Korea Development Bank into general syndication, which is scheduled to close on September 11. The deal comprises of three tranches structured as a $200 million one-year (Tranche A), a $100 million two-year (Tranche B) and a $100 million three-year (Tranche C) transaction.
The facility is priced at a margin over Libor of 10bp, 15bp and 25bp for the one-, two- and three-year deals. Being marketed on three levels, the deal offers participation fees over of 5bp (all-in of 15bp) for Tranche A, 16bp (all-in of 23bp) for Tranche B and 24bp (all-in of 33bp) for Tranche C to co-arrangers with commitments of $15 million and above. Banks joining on the lower level as senior lead managers with $10-$14 million in commitments receive participation fees of 4bp (all-in of 14bp), 14bp (all-in of 22bp) and 21bp (all-in of 32bp) for the three tranches. Lead managers committing $5-$9 million receive participation fees of 3bp (all-in of 13bp), 12bp (all-in of 21bp) and 18bp (all-in of 31bp). Banks can participate in the deal by booking their commitments as a loan or an FRN.
Proceeds from the deal would be utilized for general working capital purposes and pre-payment of the $200 million two-year term loan and FRN facility tapped in September 2001. According to figures provided by Dealogic, KDB paid a margin of 35bp over Libor for that deal. The pricing of that deal itself was lower than that paid by KDB in 2000, the first time it came with a mixed structure comprising of a loan and a FRN. In 2000, KDB's three-year $300 million deal paid a margin of 52bp.
The pricing on the current transaction demonstrates KDB's ability to set a benchmark, not only for itself but also for other Korean borrowers. In the last three years, KDB's pricing on its loan/FRN deals has almost halved each time it has tapped the markets. Other Korean banks such as Kookmin Bank, Export-Import Bank of Korea, Koram Bank and Korea Exchange Bank are all said to be considering tapping the loan markets in the near future.
Market participants observe that the pricing, typical of Korean bank deals this year, is ridiculously low. While many question whether one has seen the bottom for pricing of loan deals from Korean banks, others cast aspersions on the pricing citing that only select banks would be participating in loan deals from the Korean banking sector going forward. The present deal is widely seen as a relationship defining deal.
In that context it would be particularly interesting to see the results of this deal, especially the allocations on Tranche A. Observers believe that given the size of Tranche A, it is likely to suffer a little and would see limited participation from other banks. It is very likely that the lead arrangers could hold a major chunk of the final take in Tranche A. Some observers feel that the lead arrangers would probably sell down in the secondary market to reduce their exposure and thereby take a small hit if they are willing to. In fact, there has been a growing trend in the market, where banks have preferred to wait and buy the asset in the secondary market, instead of rushing in to buy in the primary market at tightly priced levels. Observers feel that the two- and three-year tranches could still be absorbed given that the size is small.
Others argue that as Tranche A is only a one-year deal, the lead arrangers could still hold on to their investments until maturity. Moreover, the strong credit rating (A3/BBB+) that KDB enjoys dissipates any concerns that lenders might have in terms of credit quality as KDB is considered as the closest credit to the sovereign. The bank has shown sharp improvement in its performance for the first quarter of 2002. Net income in that period was KRW109 billion, which was the net income for the whole of 2001.
KDB is a frequent visitor to the domestic and foreign loan and bond markets. According to a research report issued by Bank of America, borrowings constituted up to 32% of its total funding for the first quarter of 2002, with bonds accounting for 54%. Domestic currency bonds accounted for 70% of KDB's total bonds outstanding as of 31 March, 2002.