Kookmin’s latest bond offers value

The Korean bank’s latest dollar bond offers attractive returns when compared to existing comparables but only if pricing doesn’t tighten excessively.

Kookmin Bank is marketing a dollar-denominated senior unsecured bond maturing in three years, offering bondholders attractive value as US investors return from Friday's Independence Day break.

According to a term sheet seen by FinanceAsia on Monday, Korea’s largest bank by assets is selling its new 144A/Reg S-registered notes at Treasury plus a spread of around 85bp. With the US Treasury three-year bond trading at a yield of approximately 0.98%, this works out to a yield of 1.83% on the new issue.

In spread terms, Kookmin’s new offering is about 15bp to 30bp wide of a comparable issuance, which is fairly attractive, investors said.

For example, it is 30bp wider than its existing bond maturing in January 2017 on a G-spread basis. Also, Kookmin's new note is 14bp and 5bp wider than Hana Bank and Shinhan Bank's existing bonds expiring October 2017 and July 2017 respectively on a G-spread basis.

“The Kookmin new issue is attractive relative to our ratings-adjusted fair value curve…,” said Matthew Phan, credit analyst at CreditSights, an independent research provider. “The pricing is wider than that of the Malaysian banks, which are rated lower and which are in a different part of the economic and credit cycle compared to the Korean banks.”

As is the norm at initial guidance levels, the new deal looks appealing compared to Kookmin’s existing curve and its closest comparables, agreed Mark Reade, desk analyst for Asian fixed-income trading department at Mizuho Securities.

But taking note of Korea National Oil Corporation’s $800 million dual-tranche bond that came to market last week, and the degree to which its pricing tightened, it’s hard to get substantial pickup from any Korean dollar-denominated bonds generally at current levels, Reade added.

“Once pricing is tightened 10bp to 20bp, we find it hard to get too excited about the deal,” Reade said. “That’s because of our growing cautiousness about US Treasury yields and broader Asian credit markets, where outright valuations appear stretched, corporate leverage is increasing and our recent roadshow meetings have revealed that investors are far more aggressively positioned than they were at the start of the year.”

Record breaking volumes

Kookmin Bank’s bond follows a flurry of issuance by Korean issuers in the dollar market since the beginning of the year, which have tended to do well with investors keen to move up the quality curve into the investment-grade space.

South Korean G3 bond volume stood at $20.4 billion in the first half of 2014, more than double the $9.7 billion raised during the same period last year and the highest semi-annual issuance on-record, according to Dealogic data.

Deal activity reached 54 transactions in the first half of the year, up 59% compared to the 34 offerings completed during the same period in 2013, the data provider added.

Barclays, BNP Paribas, Bank of America Merrill Lynch, Citi and Standard Chartered are the joint bookrunners of Kookmin’s latest bond offering.


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