Kexim prices $2.25b dual-tranche jumbo

The state-owned export credit agency rides on investors’ thirst for safe-haven assets, shedding at least 15bp from initial price guidance for its new bond.

The Export-Import Bank of Korea (Kexim) sold a $2.25 billion dual-tranche bond on Tuesday morning, pricing it at the lower end of its final guidance as investors clamour for safe-haven assets amid market volatility.

The Korean borrower’s SEC-registered $1 billion five- and $1.25 billion 10-year tranches priced at Treasuries plus 90bp and 102.5bp, which is around 15bp and 17.5bp tighter than their initial price guidance area respectively, according to a term sheet seen by FinanceAsia.

The five- and 10-year tranches have a yield of 2.288% and 2.935% and coupons of 2.25% and 2.875% respectively. 

“Last week’s market volatility — fuelled by concerns over oil, Greece and Chinese high-yield developer defaults — along with the accompanying US Treasury rally will likely drive demand for safe-haven assets that provide some additional juice over UST yields,” said Mark Reade, Asia fixed income analyst at Mizuho Securities. “In that regard, [Kexim’s] US dollar [bond] should ultimately benefit.”

Asian credit markets got off to a weak start this year with the default news surrounding Chinese developer Kaisa having a notable negative impact on market sentiment. The company missed an interest payment deadline due on its $500 million in offshore bonds on January 8, and has entered a 30-day grace period.

The weakness was not limited to the Chinese property sector as risky assets globally were under pressure at the beginning of last week, with the 10-year UST yield dipping below 2% and sizable falls in global equity indices. This was in part driven by the continuing slide in oil prices, which has dipped below $50 a barrel.

Asian investment grade spreads were wider across the board end of last week, with most markets seeing spreads between 10bp and 15bp wider, according to Goldman Sachs in a report on Friday. The notable underperformer was the Chinese property BBB sector, which saw spreads widening by over 25bp on average.

Kexim opted to smartly sit on the sidelines during last week’s market volatility, a Hong Kong-based credit analyst said. As such the borrower was able to benefit from a 15bp drop in 10-year UST yields — now hovering around 1.96%, according to Bloomberg data.

"As was the case in previous years, we had been eyeing the market since beginning of the year," said Sung-Hwan Choi, CFO of Kexim. "Seeing the Asian market opening up stable and in the absence of major competing supply, we decided the backdrop was conducive of a transaction and announced the deal in Asia morning."

Safe haven status

Additionally, foreign investors have been increasingly rewarding South Korea a safe-haven status. For example, the nation’s dollar-denominated government bonds rose as concerns that Greece will leave the euro prompted investors to seek the relative safety of sovereign debt.

The yield on the country’s dollar notes due June 2044 rose to an all-time high last Wednesday to trade at 122.2 or a yield of 3.013%, while its outstanding paper due September 2012 increased to a record high on Monday to trade at 111.42 or a yield of 2.4%, according to Bloomberg bond data.

“Adding to last week’s volatility was a complete absence of secondary market liquidity,” said Reade. “In that regard, this deal — the first Korea quasi-sovereign financial deal in over four months — should provide some much-needed liquidity and price discovery to the sector.”

The last time Kexim tapped the dollar bond market was in August, when it also raised a $1 billion dual-tranche bond. The issuer priced a $500 million five- and 12-year bond offering at a yield of 2.407% and 3.364% respectively.

The Korean policy bank also raised a total of $5 billion in dollar-denominated bonds (or 32 offerings) last year, which is double the volume sold the year before, according to Dealogic data.

Comparables

The nearest comparables for Kexim’s latest offering includes its outstanding paper maturing in June 2020 and January 2024, which were trading at a G-spread of 87bp and 90bp respectively, according to a source familiar with the matter.

Other comparables includes the borrower’s existing notes expiring in August 2019 and 2026 that were trading at a G-spread of 75bp and 105bp, said the source, adding that the fair value for its new five- and 10-year bonds should be around Treasuries plus 80bp and 95bp.

"One of our main objectives for this offering was to discover the fair value of our bonds and price them at those levels," said Kexim's Choi. "If the market demanded a premium over our secondary curve, we were prepared to pay it."

The five- and 10-year tranches received an orderbook size of $2.7 billion from 202 accounts and $3.4 billion from 223 accounts respectively. 

For the five-year offering, investors were almost equally split between Asia, Europe and the US. Most of the paper went to fund managers (44%), banks (19%), insurance (15%) and others (22%). 

As for the 10-year, Asian investors subscribed to slightly over half of the notes, followed by US investors with 31% and EU 15%. Fund managers purchased 41% of the paper, followed by insurance 38%, public and other 13% and banks 8%.

Kexim is 100% owned by the state — 70.1% directly , 15% through the Bank of Korea and 14.9% through Korea Finance Corporation as end-July 2014. 

Barclays, Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC, JP Morgan, The Royal Bank of Scotland and Samsung Securities were the joint bookrunners of Kexim’s transaction. 

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