The Aa2/AA-/AA- rated transaction once again underlines Kexim’s standing as one of the region’s pioneering borrowers, as well as one of its most active.
Kexim was the first Asian issuer to open the market for climate-friendly bonds in February 2013 when it raised $500 million from a similar five-year deal. However, issuance has been fairly sporadic since then despite investment bankers' great hopes to the contrary.
No other Korean borrower has come forward and since 2013, total dollar-denominated issuance from the region ex Japan amounts to just $3.35 billion from seven issues according to Dealogic figures.
Kexim had dispersed all the proceeds from its previous issue by the end of 2014 according to one of its regular green bond investor updates. Bankers said it had been monitoring the market for a while and had been looking for a window ahead of the Chinese New Year holiday.
It chose a day on which it pretty much had the field to itself across the entire world. No other corporate issuers approached the dollar denominated debt markets against a backdrop in which oil dipped below $30 a barrel again and BP spooked the market with a $5.2 billion net loss for 2015.
Bankers said Asian investors anchored the deal, giving confidence to their European and US counterparts. While this is typical for standard dollar-denominated issues, it has not previously been the case for green debt where the investor base is largely based in Europe and the US.
One syndicate banker said a number of green funds have set up in the region over the past year, although final statistics show that roughly 30% went to specialist green investors compared to 70% last time round. This poorer showing is not that suprising given the volatility of underlying market conditions.
By geography, Asian investors took 48% of the new deal followed by European investors on 35% and US investors 17%. Last time 47% was placed into the US, with 32% going to Europe and 21% into Asia.
At $1.1 billion the final order book in 2016 was also weaker than 2013's order book when Kexim attracted $1.8 billion from 100 accounts. This is also not that surprising given market conditions.
Distribution statistics show that 64 accounts participated of which 40% were asset managers, 30% insurance funds, 20% banks and 10% central banks.
Kexim's senior finance officer BS Kim told FinanceAsia the policy bank settled on $400 million as this size matched the requirements of its green projects. He estimated it would take one to three years before proceeds were fully dispersed.
He said Kexim was not unhappy with the outcome given how difficult market conditions have been. Green bonds typically price flat to an issuer's senior debt and this offering was no different.
After marketing the deal around the 105bp level, pricing was tightened to 2.5bp either side of 90bp over Treasuries. Final pricing was fixed at 99.745% on a coupon of 2.125% to yield 2.179% or 87.5bp over Treasuries.
Syndicate banks and fixed income analysts concluded that it priced about 2.5bp wide of fair value.
The group’s existing 4% January 2021 bond was trading on a G spread of 85bp on Tuesday, while rival KDB’s 2.5% January 2021 bond was at 88bp over.
In a credit note, Mizuho wrote that while it is hard to get too excited by any bond with a spread below 100bp, it thought the deal looked more attractive now that five-year Treasuries stand at 1.35% compared to 1.76% at the beginning of the year. “Against that backdrop we expect Korean US dollar cash spreads to grind tighter this year,” it commented.
Kexim's BS Kim acknowledged the need for a new issue premium. He said: "Issuers need to consider incorporating a new issue premium now that markets are so volatile. But getting tight pricing has never been our sole priority. We also want to diversify our investor base as well."
This year the policy bank has a $12 billion fundraising target from the offshore debt markets and as usual, Kim said, most of the funding would in dollars, although Kexim constantly monitors funding opportunities in other currencies.
Kexim says its green financing incorporates all credit types including export credits, overseas investment credits, import credits and guarantees.
The policy bank adheres to the Green Bond Principles, a set of voluntary guidelines drawn up by industry players in Europe. These stipulate that borrowers should pay for a second opinion certifying use of proceeds.
Kexim’s Indian counterpart, India Exim, drew considerable criticism for setting a poor benchmark for other Indian issuers in March 2015 when it launched its own $500 million deal without one.
Kexim’s second opinion comes from Cicero, an independent research centre associated with the University of Oslo. It certifies that Kexim’s financing team has the necessary expertise to assess green projects and has come up with a list of eligible projects that will reduce greenhouse gases.
Joint bookrunners for the bond deal were Bank of America Merrill Lynch and Credit Agricole.