Kexim successfully returned to the international dollar market yesterday (Wednesday) with a transaction that was increased and priced in line with expectations relative to its old rival KDB. Led by ABN AMRO, Barclays and UBS Warburg, a five-year Reg S deal was upsized from $500 million to $700 million and priced at 99.987% on a coupon of 4.25% to yield 4.253% or 127bp over Treasuries. Fees totaled 20bp.
The deal was said to have come at a 3bp to 5bp premium to KDB, whose November 2007 bond was variously reported as being bid at 122bp to 124bp over Treasuries at the time of pricing. This was in line with expectations and similar to IBK, whose recent $500 million three-year deal of mid-September came at a 2bp to 4bp pick-up to the proxy sovereign curve.
Observers say that books closed two times covered with participation from 163 accounts and a geographical split, which saw 65% placed in Asia, 33% in Europe (including 8% offshore US) and 2% in Korea. By investor type, 40% went to asset managers, 40% to banks, 12% to private banks, 5% to insurance companies and 3% to corporates.
No one account was allocated more than $20 million and a number of the European accounts were said to have be returning to Korea for the first time in a number of years. Specialists also note that KDB's guarantees of Kepco debt have started to weigh on the bank's credit lines and conclude that investors see Kexim as a welcome diversification play.
The issue was launched off a $2 billion MTN programme and marks an important transaction for the A3/A- rated credit, which once threatened to rival KDB as the Republic's most active international borrower before coming unstuck by the Asian financial crisis. After launching a debut global bond in February 1996, Kexim spent the months leading up to September 1997 building an impressive yield curve for itself, launching five transactions, of which two were in dollars, two in Deutshemarks and two in Yen.
Since the crisis, the bank has tried and failed twice to re-access the international markets, before giving up and returning to the loan markets. In October 1997, for example, it attempted to raise $350 million via Salomon and UBS Warburg. The following summer it also floated the idea of a $1 billion global, before being downgraded alongside KDB below the then sovereign ceiling of Ba1, after the agency cited its concern about a lack of an explicit sovereign guarantee for the policy banks.
Pre-crisis, Kexim was rated AA-/A1 and funded itself around the 40bp to 50bp level over Treasuries at the five-year part of the curve. In recent months, much of the investor support underpinning the Korean credit bid has been a momentum play as the Republic's credit rating inches back to pre-crisis levels again. Late last week, for example, Moody's amended the sovereign's A3 rating from stable to positive.
Bank investors have also become more active participants after diversifying away from the saturated loan market, where margins have become uneconomically thin and paper has become increasingly difficult to place. Kexim itself scraped through a three-tranche loan in mid-September, attracting only $47.5 million in general syndication on a deal which paid just 17bp over Libor for its one-year tranche, 24bp over for a two-year tranche and 34bp over for a three-year tranche.
This loan followed a similarly tight deal for KDB and preceded a loan for IBK, which failed to get off the ground and has now transmuted into a second bond deal. One of the lead managers, JPMorgan is believed to have lent IBK up to $150 million on a bilateral basis and the other, Merrill Lynch, has long been IBK's house bank although it was absent from its most recent bond deal.
Launch of a new five-year transaction is expected early next week and the bank is not said to be planning new roadshows since it only recently came to the market with a $500 million deal in September via Credit Suisse First Boston and Goldman Sachs. Pricing of the A3/BBB+ rated deal was completed at 99.955% on a coupon of 3.5% to yield 3.156% or 151.5bp over Treasuries. Yesterday, the deal was said to be trading around the 155bp level.
IBK will be followed by a $350 million to $500 million issue for a rare, but highly prized Korean borrower, Kookmin Bank. ABN AMRO and HSBC are expected to be formally awarded a mandate tomorrow (Thursday) and both houses recently participated in the bank's successful $300 million two-tranche loan issue. This paid 24bp all-in on a two-year tenor and 34bp all-in on a three-year.