Kexim prices $1 billion senior unsecured notes

The 5.5-year issue is priced at the tight end of guidance after attracting $2.7 billion of demand.

Export-Import Bank of Korea (Kexim) sold $1 billion worth of 5.5-year SEC-registered senior unsecured notes early yesterday morning. The bonds carry a 4.125% fixed-rate coupon and were re-offered at 99.465 to yield 4.235%. The maturity date has been set to September 9, 2015.

Initial price guidance over the equivalent five-year US Treasury yields was set in the 200bp area. However, some accounts, particularly in Asia, demanded a higher new issue premium than that implied by this guidance. The reason was that at the time the initial guidance went out, the spread of Kexim's existing January 2015 bonds was quoted at 185bp over the five-year Treasury. Investors that were against the 200bp pricing held the view that in order to get paid even to the curve, the yield would need to be set at 185bp plus 24bp (the eight-month difference in maturity would equal about a 3bp per month).

However, the joint bookrunners (Deutsche Bank, HSBC, J.P. Morgan, Royal Bank of Scotland and UBS) pointed out that the 2015 bonds issued by Korea Development Bank and Industrial Bank of Korea were more relevant comparisons as they were the two most recent deals by Korean policy banks and have a similar tenor to the new Kexim offering. At the time of the initial guidance KDB was trading at 188bp over Treasuries and IBK was at 192bp.

In the end, the deal priced at 195bp over the equivalent five-year US Treasury. With the yield curve worth roughly 3bp per month, this meant Kexim priced roughly on top of the curves of these two peers.

All bonds were trading tighter in the secondary market yesterday. The new Kexim issue tightened to 190bp to 188bp shortly after pricing, while the KDB 2015s were trading at 185bp and the IBK 2015s moved in to 190bp.

Even so, Yang-Myung Hong, credit analyst with Nomura, did not find the relative value of the new bond to be compelling when compared to Kexim's shorter-dated bonds. "There is probably some premium for being the on-the-run liquid benchmark, (but) it trades about 10bp to 15bp tighter on z-spread (over swaps) compared to the 2014 bonds."

The total demand amounted to $2.7 billion from 230 orders. The final pricing was driven strongly by US investors, who accounted for 56% of the order book. European investors made up 24% and Asian investors 20%.

Fund managers were the biggest buyers, taking 64%. Insurance and pension funds were allocated 16%, hedge funds (and others) received 8%, banks 7% and retail 5%.

"This was one of the smoothest Korean deals that have ever come to market," said one banker. The borrower had a clear target of what it wanted to achieve and provided arrangers with a static target of $1 billion to hit. In addition to this, the Kexim name is well known in the US dollar market and therefore investors knew what they were buying into. Both of these factors attributed to the 16 hour turn-around from mandate to pricing.

Kexim's total funding requirement for 2010 is $6 billion, with about half of that expected to come from public bond offerings, dependant on market conditions. HJ Roh, director general of the international finance department at Kexim, said the proceeds from this deal will go towards refinancing of the bank's existing debt and be passed on to clients.

Overall, Roh was satisfied with the performance of the bonds despite the volatile market backdrop. "This is a benchmark issue in Korea and we feel like we've done our job this time in helping to set price expectations for Korean issuers," Roh said.

The bonds are rated A2 by Moody's, A by Standard and Poor's and A+ by Fitch.

In addition to the five bookrunners, Hana Daetoo Investment Bank and Woori Investment & Securities acted as lead managers for the offering.

The next issues scheduled to come to market are Hyundai Motor Company and CLP Holdings. Hyundai will finish a four-day roadshow on Friday. The lead arrangers for the deal are Bank of America Merrill Lynch, Barclays Capital, Citi, Goldman Sachs and Nomura.

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