The deal came after news that a slew of offshore companies were planning to raise ringgit funds triggered volatility in the swap level and caused it to widen significantly. Last week, however, swap levels remained stable enough to close the transaction.
ôThis was a good deal. Kexim managed to raise a significant amount of funds at attractive levels relative to what it could have achieved in the G3 markets, despite the recent widening of swap spreads,ö says a banker not involved in the deal. The Korean bank is estimated to have saved 30bp-40bp on the 10-year trade, and 20bp-30bp on the five-year trade versus G3 markets.
One-and-a-half times covered, 40 accounts participated in the transaction, which included a five-year M$500 million tranche and 10-year M$500 million tranche that priced at 4.08% and 4.5% respectively. On an after-swap basis, this equates to between 90bp and 100bp over Libor for the five-year tranche. The 10-year priced approximately 15bp back from that. "The swap market is very illiquid, so it's hard to pinpoint the exact levels on a Libor basis," says a source close to the deal.
Director general of Kexim's international finance department, JK Kim, says: ôWe found swap counterparties that offered attractive levels, and succeeded in pricing the bonds within the guidance issued on Tuesday. We are satisfied with what we have managed to achieve with RHB in the Malaysian ringgit market.ö
The leads issued guidance last Tuesday at between 3.98% and 4.08% for the five-year tranche, and 4.4% and 4.5% for the 10-year tranche. ôWe priced at the wide end of guidance, but we wanted to leave a few basis points on the table for the bonds to perform well in the secondary markets and pave the way for other Korean issuers," Kim says.
A total of 30% of the bonds were allocated to asset managers, 30% to insurance companies and 40% to government funds. The deal benefited from special capital treatment by the central bank because of its quasi-sovereign status, meaning the assets were 0% risk-weighted. This allows banks and insurance companies to hold the bonds without needing to provide capital.
Kexim is examining other domestic markets, but Kim declined to elaborate. Nonetheless, the bank is contemplating G3 transactions again this year, although no such issues are likely to price within the first quarter. Kexim needs to raise $4 billion on the public markets in 2008.
In the ringgit market, an estimated 20 borrowers are now seeking to raise funds in Malaysia. ôNot all of these are likely to occur. If the cross-currency swap levels continue to widen, it will not be economically viable for issuers to come to market," says a source. "Some issuers may want to pay up for the chance to diversify their investor base, but the pricing advantage is diminishing."
OCBC is expected to bring a deal via OCBC and RHB Bank, while State Bank of India (SBI) is also said to be contemplating a transaction of up to M$750 million. Although lower-rated, SBI should benefit from the implementation of Basel II regulations in Malaysia this year, which will allow some banks to benefit from 20% risk-weighted assets (instead of 100%), should they wish to buy these bonds. Rumour has it that HSBC will handle that deal.