Korean policy bank Export-Import Bank of Korea (Kexim) announced a Swiss franc deal late on Tuesday afternoon, pushing into a niche currency as US dollar bond markets stall and investors in Asia have turned risk averse.
“We have decided to tap the Swiss franc market as it is more stable than the US dollar market, and for diversification,” Sung-hwan Choi, Kexim’s chief financial officer, told FinanceAsia in a phone interview. “As we need to raise about $10 billion this year, we need to tap different investor bases,” he added.
The policy bank started marketing a dual tranche three-year floating rate note and a five-and-a half-year fixed rate note, at an initial guidance of three-month Libor plus 45bp and 55bp over Swiss franc mid-swaps respectively. The deal was announced with a minimum size of Sfr100 million ($111 million) for each tranche. Credit Suisse and UBS are joint bookrunners.
Kexim tapped the market with a $1.5 billion dollar bond in January, prompting it to look elsewhere for funding. “We have just finished a US global deal in January; we cannot go there for another two or three months,” said Choi. Choi added that the bank is looking at various other markets including the Samurai and Australian dollar bond market.
According to a source familiar with the deal, Kexim will swap the proceeds into US dollars and chose the Swiss franc market to take advantage of the favourable swap markets. On an after swap basis, the Swiss franc deal is expected to price flat to its US dollar curve.
January was a busy month for US dollar bonds, but amid widening spreads, investors have less appetite for new bond issues. The iTraxx Asia ex-Japan Investment Grade Index - which measures credits spreads for Asian investment grade borrowers - widened by 3bp-5bp today to 155bp. Amid widening spreads in the dollar market, investors expect borrowers to turn to different markets, including the dim sum bond market.
“Investors have been in risk-off mode and, with US dollar spreads widening, there are cheaper bonds to buy in secondary,” said Bryan Collins, portfolio manager at Fidelity. “I expect that high grade borrowers with the ability to tap other markets and are sensitive to pricing will turn to other currencies, particularly the dim sum market, where the relative cost of funding hasn’t risen as much,” Collins added.
Hyundai Capital sold a $1.5 billion bond on Monday – a public holiday in Hong Kong – but that deal was marketed mainly towards US investors.