Korea Electric Power Corporation (Kepco) came to market late Monday night Hong Kong time with $700 million of senior unsecured debt. The five-year notes were issued with a 3% semi-annual coupon and were re-offered at 99.664 to yield 3.073%.
The bonds printed at 180bp over the five-year US Treasury yield, which was aggressive compared to Korea Hydro and Nuclear Power Company's recent 2015 bonds. At the time of pricing, Korea Hydro was trading at 184bp over Treasuries.
“I would say Kepco almost priced to perfection with a few basis points of upside left on the table,” said Pradeep Mohinani, credit strategist at Nomura. By late afternoon Hong Kong time yesterday, the bonds were quoted 1bp tighten than the issue spread, at 179bp.
The notes will mature on October 5, 2015. They are rated notes A1 by Moody's and A by Standard and Poor’s.
Initial guidance was released late Monday morning (Hong Kong time) for a yield spread in the low 180s. This was revised during London trading to 182.5bp, plus or minus 2.5bp.
“It is important for investors to take a message away that the issuer and the banks want a transaction that trades well in the secondary markets and doesn't widen out significantly,” said one banker.
By the time the final guidance was released, the deal size had still not been disclosed, but based on the final size of $700 million, the deal was just over 2.4 times subscribed with orders from about 140 accounts.
Steering away from other quasi-sovereign Korean credits that have typically secured a strong Asian bid, Kepco sold 63% of its new 2015 notes into the US. Many US investors, comparing it to domestic US sector peers, looked to the credit as an opportunity to diversify.
“That’s very different to the way Asian investors look at it,” said one source. "Asian investors don’t trade US domestic names in the utility sector, and therefore look at it versus other Korean credits,” he added.
At the time of pricing, a split-rated A3/BBB+ US utility had just come to market with a 10-year deal at Treasuries plus 145bp.
“For the ratings you get a big pick-up in yield by being in the Kepco deal, as opposed to this US single-A credit and other domestic US utilities,” said a banker familiar with the deal.
European investors bought 10% of the bonds and Asia took the remaining 27%. For these accounts the most liquid benchmark used was the recent Korea Hydro deal. By the end of Asian trading yesterday, the Kepco bonds had tightened to a spread of 176bp.
Fund managers received the greatest allocation with 54%, insurance companies took 19%, central banks 10%, private banks 10% and commercial banks 6%. The final 1% of the deal was allocated to other types of investors.
Bank of America Merrill Lynch, Barclays, Credit Suisse, Goldman Sachs and Morgan Stanley were the joint lead managers and bookrunners. Daewoo Securities was also on the deal as a joint lead manager, but wasn't involved in running the book.