Kexim back again with a $1.25 billion 10-year bond

Against a more stable backdrop, Kexim reawakens the market with a 10-year issue that attracts $3.5 billion of demand. Korea Housing Finance Corporation and NACF are expected to follow.

Maintaining its reputation as one of Asia's most regular issuers, Export-Import Bank of Korea (Kexim) returned to the US dollar market for the second time this year on Monday with a $1.25 billion 10-year deal.

According to market sources, the lead managers monitored the markets last Friday, waiting for a clear window in which to execute the deal. Given the more stable backdrop and more bullish sentiment on Monday, Kexim decided to launch through that window and the deal was announced by 11am.

"Timing was very good," said one banker. "All the equity markets were on fire."

The SEC-registered notes were issued with a 5.125% fixed-rate coupon. They were reoffered at 99.229 to yield 5.225%. This was equivalent to 198bp over the US Treasury yield. The maturity date is June 29, 2020.

The joint bookrunners for the deal were Bank of America Merrill Lynch, BNP Paribas, Citi, Deutsche Bank and Royal Bank of Scotland. Woori Investment and Securities participated as a joint lead manager.

They initially approached investors with a whisper suggesting a yield spread in the low 200bp area. The guidance was firmed up to around 210bp by late afternoon, and was finally revised to 200bp with a range of 2bp either side.

The bonds eventually priced at the tight end of this range at 198bp over the equivalent 10-year US Treasury yield.

At the opening of the Asian trading session yesterday, the bonds traded slightly tighter at Treasuries plus 196bp. But the spark in the markets dimmed during the rest of the day, with equity indices in both Japan and Korea falling. Against the weaker market backdrop, the Kexim bonds widened and finished Asian trading at a yield spread of Treasuries plus 204bp.

The lead managers saw healthy demand from launch, with strong momentum from Asian investors at an early stage of the marketing. But ultimately, it was the US accounts that ensured the success of the transaction.

"US investors like this name a lot because of the strong credit story, and the 10-year tenor is the sweet spot for US investors," said one banker.

It was also an opportunity to buy longer-dated Kexim paper. The last time Kexim came to the market with a 10-year issue was in 2006, when it priced a $1 billion bond.

"Borrowers are able to take advantage of relatively low all-in costs, driven by the big rally in the US Treasury markets" said another source. And with stability restored to the markets, issuers are able to lock in costs for long-term funding, he added.

The total order amount reached $3.5 billion from 210 accounts. US investors bought 62% of the issue, and investors in Asia and Europe took 28% and 10% respectively.

Fund managers were allocated 63% of the bonds, banks 17%, insurance companies 9%, and central banks 5%. The remaining 6% was sold to other investors.

Historically, Kexim has been one of the most active cross-border issuers from Asia, excluding supra-sovereign agencies like the Asian Development Bank.

"Kexim is a frequent borrower in the market," said one banker. "There is no fixed amount of funding and they generally look to access the market on a periodic basis."

Only two weeks ago, Kexim successfully priced a three-and-a-half-year bond in Taiwan's Formosa bond market. The notes will be listed on June 23 and carry a semi-annual coupon of 2.65%. The issue was the first Formosa bond to be sold by a Korean borrower.

And, in March, Kexim raised $1 billion through a 5.5-year US dollar issue.

Kexim's latest deal could be just what the market needs to encourage other borrowers to launch new issues. The Korean policy bank was joined on Monday by Citic Bank International, which tapped the market through a $500 million 10-year deal, jointly arranged by Barclays Capital and HSBC (see separate story on our website today).

Korea Housing Finance Corporation, which has earlier announced that it intends to issue a covered bond, began investor talks on Monday and, yesterday, Korea's National Agricultural Cooperative Federation (NACF) said that it will begin a non-deal roadshow on June 24.

Also yesterday, Bank of East Asia appointed Citi and J.P. Morgan as lead managers for a deal. The bank will commence a two-day non-deal roadshow today, but so far it has released no indication of size or tenor.

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