The Export-Import Bank of Korea (Kexim) early last Friday morning priced a $1 billion 10-year bond, re-opening the market for other Korean borrowers.
Bank of America Merrill Lynch, Credit Suisse, Daiwa, Goldman Sachs, HSBC and J.P. Morgan were joint bookrunners. Woori Investment & Securities was a joint lead.
The Asian dollar bond market has been more or less shut since August, with issuance dwindling to $1.7 billion in August, a far cry from the peak of $14.6 billion in April, according to data from Dealogic. Undeterred by the weak market conditions, Kexim seized a window of opportunity and closed its bond with lightning-quick execution.
“Markets have been very volatile — one day it’s up and the next day down,” said Yoon-Young Kim, chief financial officer of Kexim. “We have been watching the market for a few weeks and, in the end, we weighed the pros and cons and decided that the downside risk of not issuing is bigger and found a window before Obama’s speech to launch our deal.
“In these volatile markets, getting the timing right is very important for a borrower,” Kim added. “The timing was right and we are happy with the transaction. We’ve also re-opened the market for other potential Korean borrowers which are also looking to tap the market.”
Bankers suggest that there are several other names such as Shinhan Bank, Hana Bank, Korea Finance Corp and Korea National Oil Corp that are planning to tap the bond market.
Kexim mandated the leads last Monday and by Thursday they had announced the deal, with guidance in the area of Treasuries plus 250bp. This guidance was revised to Treasuries plus 245bp to 250bp and the bonds priced at the tight end. The coupon was fixed at 4.375% and the notes reoffered at 99.456 to yield 4.443%.
Initially, there was talk that the size could be $1 billion to $1.5 billion, but Kexim showed restraint and kept it to $1 billion, mindful of the fragile state of markets. “We could have raised $1.5 billion but we did not want to disappoint investors in case the bonds did not trade well, so we decided to issue $1 billion,” said Kim.
According to one banker on the deal, a number of investors indicated that they would not participate if the deal was larger than $1 billion. In the end, Kexim gathered an orderbook of $3 billion from more than 210 orders, with half the deal allocated to US investors and strong participation from fund managers.
Keeping the deal size manageable proved to be the right decision as the bonds continued to perform in the secondary market and were quoted 4bp tighter at Treasuries plus 243bp/241bp on Friday morning.
“The Kexim new issue was well executed,” said Scott Bennett, head of Asian credit at Aberdeen Asset Management Asia. “Price guidance came generously in the Treasuries plus 250 area and it was priced just 5bp inside of that, so it was able to trade a few basis points tighter.”
Kexim offered a juicy new issue premium of 25bp to 28bp, which was in line with premiums paid by recent borrowers such as France Telecom and Lockheed Martin, according to another banker on the deal.
The closest comparables were the Kexim January 2021s, which were quoted at a yield of Treasuries plus 207bp prior to the deal announcement. These bonds subsequently widened 10bp after the deal was announced. Taking into account the tenor extension and the level at which the Kexim January 2021s were trading before the deal was announced, this put the value of the new Kexim September 2021s at 218bp.
US investors were allocated 54%, Asian investors 36% and European investors 10%. Fund managers were allocated 62%, insurers and pension funds 21%, banks 6%, central banks 5%, private banks 3% and corporate/others 3%.
Few emerging market borrowers have dared to tap the dollar bond markets recently, but Kexim’s successful pricing could encourage others to venture out.
“Globally, we’ve seen very little emerging market-type dollar bonds pricing, aside from France Telecom and the Republic of Chile,” added the second banker on the deal. “Kexim is the right name to re-open the market in Asia.”
Kexim is a frequent issuer in the international markets. It recently tapped the Japanese yen market and has also issued opportunistically in local currency markets, such as the Indonesian rupiah market. When Kexim taps local currency markets, it swaps the proceeds back to US dollars and hence considers those markets when the cost of funding is cheaper compared to US dollar funding levels.
Given its substantial annual funding requirements, it is expected to return to the market again this year. “We typically issue $10 billion each year and so far this year we have raised $7 billion, so we could raise another $2 billion to $3 billion for the rest of the year — through US dollars or other currencies,” said Kim. “We have issued in 18 different currencies and we decide on which currency to issue based on how cost competitive it is.”