KorAm's sub debt hat trick

The Korean bank returns to the dollar denominated sub debt sector for the third time.

KorAm Bank priced a $165 million lower tier 2 offering via Citigroup yesterday (Wednesday). The deal was launched without any formal marketing, including conference calls with the issuer, but nevertheless managed to draw a wider investor base than September 2002 when the bank last tapped the sector, also via Citi.

Priced at par with a coupon of 4.68%, the ten non-call five deal had a launch spread of 260bp over Treasuries. At this level, it came about 10bp through its existing deal on a like-for-like basis, although traders say that the latter is almost totally illiquid. Launched in September 2002, KorAm's outstanding 5.64% September 2007 issue is currently bid at about 250bp over Treasuries, but there is also about 18bp to 20bp on the nine month curve.

The most comparable issue is probably Korea First Bank's (KFB) 5.75% March 2008 transaction, which is currently trading at about 290bp over Treasuries. Both KFB and KorAm share the same Ba1 rating from Moody's. KorAm does not have an S&P rating.

Observers say that about 21 investors participated in the deal, which was announced last Friday and closed on Tuesday once books were oversubscibed. This compares to 17 in September 2002.

By geography, the book split roughly 50% Korea, 15% Europe and 35% non Japan Asia. This also means that there is wider geographical distribution compared to September, when 80% of a $200 million deal was allocated to Korea.

Nearly half the book were new investors to the credit, which has done much in recent years to build an international investor base.

Proceeds from the deal will lift the bank's CAR from 10.94% at the end of the first quarter to 11.68%. Unlike most of its domestic counterparts, KorAm has so far turned to the international rather than local markets to replenish capital at a time of falling profits.

Increased provisioning as a result of SK Corp's troubles and problems from delinquent credit cards have made it difficult for many banks to keep capital above the 10.5% cushion that most feel comfortable with.