Korea Expressway prices benchmark bond in busy market

State-owned Korea Expressway raises $700 million from international investors amid a surge in issuance from emerging market borrowers.

Korea Expressway joined the rush of borrowers last week as it priced a $700 million bond late on Thursday night. The state-owned expressway builder closed the books at the tight end of price guidance to finalise a deal that paid investors a yield of 230bp over US Treasuries. The notes mature in March 2015.

The benchmark-sized deal attracted $5.6 billion in orders from 233 accounts, which prompted the bookrunners to tighten the price guidance to 230bp-235bp during the marketing -- considerably tighter than the early talk of 250bp. However, the final price still represented a 10bp premium over Korea Expressway's quasi-sovereign peers. The deal was also priced at an attractive spread over similarly rated Korean corporate issuers. 

But it wasn't just attractive pricing that helped the bookrunners -- Deutsche Bank, HSBC and Bank of America Merrill Lynch -- to fill their order books so easily. The deal also benefited from significant momentum in the market generally.

Korea Expressway has not sold US dollar-denominated bonds since 2005 but returned to the market in time to catch a strong rally in confidence among emerging market investors. Several other state-owned Korean issuers have been to the market in recent months and, on Friday, Sri Lanka, the Republic of the Philippines and Adaro Energy all sold bonds into the international market.

The deal, which was sold to US investors under the SEC's Rule 144A and to international investors under Reg-S, also featured a structure that reassured investors who were worried the government's controlling stake could be sold down during the life of the bonds. If that happens, investors can put the bonds back at par.

The added cost and hassle of a 144A placement paid off, with 40% of demand coming from the US. Asian buyers picked up the same amount and Europeans made up the rest. Most of the buyers were from long-term accounts, with 60% going to fund managers, 15% to banks, 10% to pension funds and insurers, 7% to retail, 5% to central banks and 3% to other investors.

By Friday the bonds were trading roughly flat to the issue price.

The state-owned company is rated A2 by Moody's, A by Standard & Poor's and A+ by Fitch.

Asian issuers are expected to continue bringing new issues this week, with State Bank of India and China's Lumena Resources both scheduled to price new deals.



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