Korea Resources Corporation (Kores) came to the US dollar market on Thursday last week to price $300 million of Reg-S registered, senior unsecured bonds -- its first foray into the international debt markets.
The bonds, which have been rated A1/A by Moody's and Standard & Poor's, are set to mature on May 19, 2015 and carry a fixed rate coupon of 4.125%. The securities were re-offered at 99.513 to yield 4.234%. This is equal to a spread of 197.5bp over the equivalent five-year US Treasury yield. It is also the lowest yield from a Korean issuer in the US dollar bond market this year.
Initial guidance went out at Treasuries plus 210bp. This was later revised to 200bp, plus or minus 2.5bp. The deal finally priced at the low end at 197.5bp.
Typically, the comparable bonds for this issue would have been viewed to be the Korea Gas 2014s and the Korea Oil 2014s. However, this was not ideal as both bonds are old and slightly shorter-dated.
At time of pricing, the Korea Gas and Korea Oil bonds were trading at around mid-swaps plus 160bp. If these specific bonds were used as the comparables for pricing then investors would probably have pushed for a new issue premium and curve extension for the debut Korea Resources issue.
Therefore the arrangers looked to bonds issued by the Export-Import Bank of Korea (Kexim) due in January 2015 and in September 2015, which are more liquid.
By Friday afternoon, towards the close of the Asian trading session, the Kores bonds had tightened by about 6bp to 7p to about 190bp on the bid. The Kexim January 2015s were then trading at Treasuries plus 195bp and the September 2015 bonds were at 185bp over.
"This was a nimble and swift intra-day execution with a carefully picked window of market stability," said one source close to the deal. The arrangers' aim was to expose the client as little as possible to the current market volatility. And, in the end, were able to execute the deal within an eight-hour window.
Within that window they were able to secure $2.6 billion worth of orders -- leaving the deal 8.7 times subscribed -- from over 175 investors. Asian investors represented 73% of the allocation and European accounts bought the remaining 27%.
"The client was very sensible in watching the market and as the backdrop stabilised saw a window and took advantage of it," said one banker.
The move saw Kores attract a strong bid from real money accounts with 55% of the books being allocated to fund and asset managers and a further 19% to insurance houses, pension funds and central banks. Banks bought 14% and retail took the remaining 12%.
Lead arrangers for the deal were HSBC, Korea Development Bank, Morgan Stanley and Standard Chartered.