KFB scores first upper tier 2 deal

The Newbridge controlled bank braves US spy planes and the postponement of a sovereign issue to price its debut international sub debt issue.

A slightly scaled back $375 million 10 non call five upper tier 2 deal for Korea First Bank (KFB) was priced last night (Wednesday) by joint leads Lehman and UBS Warburg. The March 2013 transaction callable in 2008 was priced at 98.858% on a coupon of 5.75% to yield 5.785% or 320bp over Treasuries. Fees total 75bp.

The leads managed to hold the order book firm at the 320bp indicative level announced earlier this Monday despite a tightening Treasury environment and volatility in Korean spreads as a result of renewed tensions with North Korea. The book is said to have closed at $575 million and at this level about 90% of orders were inside the pre-marketed price talk. Opting to maintain pricing rather than maximising size, the Ba1/BB/BBB- rated bank decided to slightly scale the deal back from $400 million to $375 million.

"The backdrop could hardly have been worse," says one commentator. "There were North Korean MIGs chasing US spy planes, a 0.14% tightening in Treasuries and then news that the sovereign is not going ahead with its deal in April after all."

Similar to Korea Southern Power late last week, one of the keys to getting a deal done was a strong backstop bid from Korea. With a total order book of 65 investors, 38% were from Asia, 30% from Korea, 18% from Europe and 14% from the US. By investor type, the book split asset managers 40%, banks 33%, insurance companies 13%, retail 9% and corporates 5%.

Given that there has been much promise of sub debt issuance from Korea, but little actual delivery, the main comparables are still Hanvit and Cho Hung's upper tier 2 deals of 2000. In this instance, however, the latter is seen as less relevent as it now trades with a strong "Shinhan" premium and has tightened relative to the rest of the sub debt universe.

Therefore, whereas Hanvit's March 2005 issue now yields 4.10% or 263bp over Treasuries, Cho Hung's April 2005 is trading at 3.55% bid yield or 208bp over Treasuries. In Libor terms, Hanvit stands at 257bp, Cho Hung 193bp and KFB at 280bp. Taking into account the steepness of the swap curve, bankers believe that KFB has priced slightly inside where a new Hanvit deal would come.

Over the course of the week, the whole Korean sub debt universe is said to have widened 15bp to 45bp.

Proceeds will be partially be used to redeem a $200 million lower tier 2 deal which falls due in June. They will also help bolster the bank's CAR, which stood at 12.39% as of September 2002. Of this amount tier 1 accounted for 8.10%.

Newbridge took a controlling stake at the beginning of 2000 and has since turned the balance sheet around. Observers say one of the chief selling points of the deal was the banks's balanced management with a team of both local and international managers.

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