Kexim mandates re-opening

The Korean policy bank hopes to increase the size of its 2007 bond to $1 billion.

Three relationship banks have been mandated for what is expected to be a $300 million tap of Kexim's March 2007 bond. Barclays, Citigroup and Deutsche Bank have the books for the deal, having recently lent the bank money at extremely tight levels on a club basis.

Kexim is said to be targeting a launch date around May 12, although launch will depend on the bank being able to hit funding targets around the low to mid 90bp level over Libor. The $700 million 4.25% March 2007 deal is presently trading at 140bp/130bp over Treasuries, equating to about 97bp on a mid-market swap basis.

At this level it is about 10bp wide of the Korea Development Bank (KDB), whose November 2007 bond is currently trading around 130bp/120bp.

Many bankers increasingly believe the differential between the two is unjustified since the Korean government is still preparing to set its own sovereign benchmark, in the process slightly dulling KDB's reputation as the country's proxy sovereign borrower. Typically Kexim also trades at a narrower 3bp to 5bp premium to KDB than it is currently and priced the original $700 million offering at these levels back in November.

With ABN AMRO, Barclays and UBS Warburg as lead managers, the five-year Reg S deal came at 99.987% to yield 4.253% or 127bp over Treasuries.

Since then the Korean credit curve has been buffeted by North Korea and accounting scandals within the SK group, although market conditions for new paper as a whole across Asia remain extremely strong. Given that there have been relatively few deals from the Republic so far this year, the tap should provide an interesting test of sentiment now that the ratings momentum has started slipping backwards rather than forwards. It will also provide the Republic with an indication of how receptive the primary market may be for its own $1 billion 10-year deal.

Korean experts say Kexim is keen to get the deal out quickly, because it is conscious of a growing pipeline of bank deals lining up from the Republic. As one says, "Even though Korean spreads have not performed well, Kexim thinks it will get better pricing if it comes ahead of the rest of the pack. It should then come back to the bond markets later in the year to finish off its fundraising requirements for 2003."

Unlikely many previous Korean deals, bankers do not believe the forthcoming issue will be driven by Korean demand, but by the wider Asian bid. In its daily relative value report Barclays said yesterday (Tuesday) that Korean credit spreads are, "unlikely to reverse much of their recent spread widening, in part given local investor concerns about corporate accounting scandals, credit card debt (which together with wider Korean Won basis-swap spreads is reflected in a lack of onshore buying interest for Korean credits), but also as any spread changes will encourage a pick-up of shelved Korean supply back into the market."

And in a pattern familiar with many recent bond deals, there have been questions at just how lucrative the new deal will prove to be for the leads. Firstly fees are expected to come in at the low 20bp mark and secondly the three recently lent the bank money at what are considered pre SK Corp levels. A $150 million one-year deal was split between them at the end of March on what is said to have been a headline margin of 10bp and fees of 11bp.

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