Korea reconsiders sovereign timetable

Having postponed its planned $1 billion sovereign bond last week, South Korea may now return to the market within weeks.
South Korea is likely to start marketing its $1 billion US dollar-denominated sovereign within weeks rather than months, after the collapse of Lehman Brothers over the weekend, says a debt syndicate banker involved in the issue.

South Korea said on Friday it had postponed its planned sovereign bond due to tough credit market conditions caused by concerns over troubles at Lehman Brothers and other regional factors. Lehman is one of the arrangers of the bond.

ôThe Koreans have just postponed the issue rather than cancelling it as the market conditions have deteriorated, but doubts have been cleared regarding Lehman,ö the banker says. He added that with Lehman Brothers declaring bankruptcy and a consortium of 10 investment banks strumming up $70 billion to help money markets, the equity markets may not collapse after all, though in the short term they may slide sharply.

The crisis at Lehman escalated over the weekend with prospective buyers Bank of America and Barclays pulling out, resulting in the 158-year-old investment bank ultimately collapsing.

The banker said a resolution about the sovereign bond issue will emerge towards the end of this week. The re-launch will be done in a matter of weeks rather than months, the same DCM banker added.

The pricing of the issue was also a factor in the postponement, according to the banker. The Koreans had 200bp over US Treasuries as a barometer for the pricing, while the syndicate bankers thought it was difficult to build a book at that price.

ôWe have told them to be flexible on the 200bp level,ö the banker says.

A senior Korean finance ministry official said in a statement on Thursday that South Korea could hold off on pricing the bond issue as debt investors demanded a higher yield to compensate for deteriorating credit market conditions.

South Korea plans to sell the bonds once conditions in global financial markets improve, the ministry statement added.

However, a second banker, not involved in the issue, said the increasing market volatility may force even good sovereign issuers like Korea to be more flexible on yields as investors are getting wary of the ever deteriorating situation.

Moody's Investors Service has assigned an A2 rating with a stable outlook to Korea's forthcoming US dollar-denominated global bond.

The Korean government's A2 rating is supported by strength and resiliency in the country's external payments position, including its diverse and competitive export industries, according to MoodyÆs. Meanwhile, holdings of official foreign-exchange reserves are still ample, despite the large increase in short-term debt, the ratings agency said in a recent statement.

Barclays Capital, Citigroup, Goldman Sachs, Lehman Brothers, Samsung Securities and UBS are arranging the deal.
¬ Haymarket Media Limited. All rights reserved.
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