Korea Hydro & Nuclear Power raised a $500 million five-year fixed-rate senior unsecured bond at a yield of 2.875% on Wednesday, following the footsteps of other local companies that have accessed international bond markets in recent weeks.
The bond from the subsidiary of Korea Electric Power was three times oversubscribed and priced 10bp tighter than its initial price guidance of 170bp over Treasuries, indicating strong market appeal for Korean corporate credit with nearly half of the demand coming from asset managers, according to sources.
US investors - 62% - took a large chunk of the pie, versus Europe and Asia with only 23% and 15% respectively. More western investors are viewing South Korea much less as an emerging market and are grouping it together with other Organisation for Economic Cooperation and Development (OECD) nations, add sources.
“Some very unorthodox investors are coming into the book,” said a source close to the deal. “We are seeing new demand coming from the US and Europe for these trades that may not have been there a couple of years ago.”
In the wake of improving market conditions, Woori Bank and GS Caltex issued five-year bonds this week, while Hyundai Capital America raised a dual-tranche $1 billion bond with yields of 2.875% and 1.875% for the five- and three-year tranches respectively on August 9.
The recent surge in Korean activity is due to a backlog of issuance. The marketing of bonds took a backseat in the past few months after the Federal Reserve’s announcement of a potential tapering in May.
However, with reaffirmation last Wednesday that the US central bank will not begin withdrawing its bond purchases just yet, a flurry of Korean issuance has hit the market, with one source highlighting that there are enough deals in the pipeline to last until end-October.
While Korean supranational, sovereign and agency (SSA) issuers have always borne the brunt of bond issuance, corporate deals are not as frequent. This is one of the reasons why these transactions tend to be easily absorbed by the market, note experts.
“Korean corporates have not been issuing a lot so when they do come altogether, it seems like there is a surge in issuance,” said a source close to the Korea Hydro deal. “Investor appetite has always been there for Korean credit and has been improved by the safe haven story given the increasing concerns about Indonesia, India and to a certain extent China.”
Year-to-date South Korean G3 corporate bond volume stands at US$4.7 billion with 20 deals, versus SSA’s US$8.8 billion with 24 deals, according to Dealogic data.
Citi, Deutsche Bank, Goldman Sachs and UBS are joint bookrunners of Korea Hydro’s bond.