Korea Highway priced its third international bond issue in New York on Tuesday (May 17) raising $500 million from a Citigroup, JPMorgan and UBS led deal. The A3/A- sovereign rated issued was priced against a backdrop of renewed spread widening, with the Korean curve out about 8bp to 10bp over the course of roadshows.
However non-syndicate bankers felt the credit and its lead managers had done a good job executing the deal, which went onto to trade well in the immediate secondary market. "Getting the pricing right and holding a deal steady afterwards is not easy in these markets," said one banker. "Executing a transaction without any hitches is a major achievement."
Pricing came at 98.938% on a coupon of 5.125% to yield 5.263%. This equated to 115bp over Treasuries, or 68bp over Libor. Fees were a relatively healthy 30bp.
Both the issue size and indicative range held firm during roadshows in the face of spread widening across the Korean curve. When the deal was first announced on Monday May 9, Korea Highway's 4.875% April 2014 bond was trading at 100bp over Treasuries.
By the time roadshows started last Thursday it had widened out to 105bp over. Come pricing late on Tuesday, it was bid at 110bp over.
This level equated to about 62bp over Libor on the bid side. Given an estimated 5bp on the Libor curve, this means the new deal has priced at a 1bp premium to secondary market levels.
The order book is said to have closed three-and-a-half times covered with participation by 95 accounts.
By geography, the order book split 23% Korea, 20% Singapore, 17% US, 15% Europe, 13% Japan and 12% Hong Kong. By allocation, the US received 25%, Singapore 22%, Europe 17%, Japan 14%, Korea 14% and Hong Kong 8%.
By investor type, asset managers applied for 44% of bonds and received 52%; banks 40% and 29%; insurance 15% and 18% and retail 1%. Bankers reported almost no participation from hedge funds, which continue to lick the wounds of recent heavy losses.
The volatility of the past two months has pushed Korea spreads back out to levels last seen a year ago before the whole curve compressed. When the company last accessed the market in April 2004, for example, it paid a similar spread of 113bp over Treasuries.
As recently as early March the deal was trading at 75bp over Treasuries and 32bp over Libor - half current levels in Libor terms. Korea Highway's one consolation may lie in the fact that underlying Treasuries remain at historically low levels, with the deal priced off a 4.125% 10-year bond.
The deal also held firm in the secondary market, with the leads showing a bid/offer spread of 113bp/110bp throughout the Asian trading day yesterday.
