Kexim completed a $1 billion SEC-registered global yesterday (March 8), achieving the tightest ever pricing by a Korean entity in five and 10 year maturities. Barclays, Citigroup and Credit Suisse First Boston were lead managers.
After accumulating an order book of $1 billion, a $400 million five-year tranche was priced at 99.612% on a coupon of 4.625% to yield 4.713%. This equates to a launch spread of 58bp over Treasuries and 28.125bp over Libor.
The $600 million 10-year tranche attracted an order book of $1.3 billion and was priced at 99.752% on a coupon of 5.125% to yield 5.157%. This equates to a launch spread of 79bp over Treasuries or 38.5bp over Libor.
The two closest benchmarks are a 4.5% August 2009 bond and a 5.25% February 2014 bond. The former was bid at 33.2bp over Libor and the latter at 41.6bp over Libor.
Given that there is about 3bp to 4bp on the Korean yield, curve, this means the five-year has priced about 7bp to 8bp through the secondary curve and the 10-year about 6bp through.
The current trading level of the 10-year is particularly interesting since it shows how well Korean spreads have done since February 2004 when Kexim similarly raised $1 billion from a twin five and 10-year bond deal. Then it raised five-year money at 113bp over Treasuries and 71bp over Libor, plus 10-year money at 123bp over Treasuries and 81bp over Libor.
However, rising interest rates in the interim period mean that yields have gone up. The 2004 five year was priced to yield 4.237% and the 10-year 5.344%.
At the time of pricing KDB's July 2009 bond was trading at 34bp over Libor and its 2013 bond at 40bp over.
Specialists report the participation of about 70 accounts in each of the new orders books, with a 50% overlap between the two. Unusually the deal was launched in the US rather than Asia as the borrower wanted to target US accounts, which have been starved of Korea sovereign or quasi-sovereign policy bank fixed rate paper since April last year. Since then both Kexim and KDB have either targeted euros or FRNs, both of which appeal to the Asian and European investor bases.
This strategy is reflected in the distribution statistics. The five-year saw 64% placed in the US, 20% in Asia and 16% in Europe. The 10-year saw 54% placed in the US, 36% in Asia and 10% in Europe.
By investor type funds took 40% of the five-year, with banks accounting for 20%, insurance companies 12% and other 28%. The 10-year saw funds take 50%, banks 25%, insurance companies 10% and others 15%.
Fund managers, which had spoken to the borrower, say Kexim has debating the merits of a euro or a dollar transaction since the beginning of February. It decided to opt for dollars partly because of lack of supply and partly because dollars spreads have started to outperform relative to euros.
It also chose a split transaction because it has a funding need in five-years, but thought that 10-year money was very attractive due to the relative flatness of the curve. It was also keen to come ahead of the next FOMC meeting on March 22.
Previously Kexim has said it hopes to raise between $2.5 billion and $3 billion during 2005.