Kookmin Bank, South Korea’s largest lender by asset value, met with strong demand for its latest sustainability bond sale as investors showed support to Seoul’s call to raise funds to support growth of inclusive businesses.
The A+/Aa3 rated lender was able to secure a whopping $2.7 billion of demand for the perpetual non-call five Additional Tier 1 bond despite a more dovish stance indicated by the US Federal Reserve a few days ago. Based on the final deal size of $500 million, the order book was over five times subscribed.
To a large extent, the new Reg S/144A deal was supported by its two outstanding sustainability bonds, both of which were indicated above par. The bank’s $300 million three-year deal issued last November was about 300 basis points higher on Tuesday, while its $450 million 10-year deal was up nearly 800bp.
Kookmin Bank has actively responded to calls from the government to issue sustainability notes as the country strives to improve its sluggish economy by supporting small and medium-sized enterprises that support low-income communities.
The lender is among a handful of financial institutions, including Korea Development Bank, KEB Hana and Korea Housing Finance, to have issued sustainability bonds so far this year. The most recent was the Ministry of Economy and Finance, which sold $500 million worth of green and sustainability bonds earlier this month.
Seoul hopes that proceeds from sustainability bonds will help mitigate some of the country’s long-standing problems including a large income gap, high youth unemployment and poor gender equality.
Kookmin Bank’s latest deal also shows its long-term commitment to the country’s sustainability drive. It is the first perpetual sustainable securities issued by a Korean corporate this year, and also the first ever sustainability AT1 bond globally.
The new bond was marketed at the 4.7% area before tightening 35bp to settle for a 4.35% coupon. That represented a premium of 263.9bp over five-year US treasuries. The subordinated debt is expected to be rated BBB- by S&P and Baa3 by Moody’s.
The bond’s interest rate will be reset every five years.
By investor type, fund and asset managers accounted for 76% of final orders, while insurance firms and banks took 14% and 8% respectively. In terms of geographical spilt, Asian accounts got 61%, the US took 25% and European accounts took 14%. There were 128 accounts in the final book.
BNP Paribas, Citigroup, Credit Agricole, JP Morgan, Bank of America Merrill Lynch and Mizuho Securities were joint lead managers of the new bond.