Kospo releases guidance for $300 million 144A deal

Korea Southern Power readies the first international bond in several months, while other Korean borrowers busy themselves in the Japanese and Swiss markets.
Korea Southern Power (Kospo) has released guidance for its $300 million five-year Reg-S/144A deal that is due to price tomorrow evening. Leads ABN AMRO, Deutsche Bank and Citi have set a level of 220bp over mid-swaps, or 300bp over five-year Treasuries.

Kospo is casting a wider net than its predecessor Korea Midland Power (Komipo), when it priced a $300 million Reg-S only deal in February. Observers said at the time that the participation of US investors would have allowed the borrower to achieve more attractive borrowing costs. Others argue only a couple of large US accounts are likely to play in these transactions, given the size. Most US investors generally prefer large liquid transactions of $500 million or more, according to some market specialists.

The guidance released yesterday compares to Korea Electric Power CorporationÆs (Kepco) CDS, which was trading yesterday at 130/110. There is no CDS quote for Kospo. Komipo's 2013 bonds issued in February were trading at 190/172 over mid-swaps, or 270/250 over five-year Treasuries - roughly a 30bp concession to KomipoÆs secondaries on the bid side.

Komipo and Kospo are two of six wholly owned generation subsidiaries of Korea Electric Power Corporation.

The deal, rated A1/A-stable, is of equal rating to Komipo, but on a stand-alone basis, KospoÆs credit is better than KomipoÆs, according to one investor. ôKospo revenues stand at W3.7 trillion compared to W2.8 trillion for Komipo, while debt-to-Ebitda for the former stands at 1.2 times versus 1.7 times for the latter,ö he says. ôGiven where Komipo's 2013s are trading now, this presents an attractive margin even assuming that the bonds price a little tighter than guidance,ö he adds.

Another investor who is participating in the deal is confident regarding the quality of the book. ôItÆs a $300 million deal, which is quite small and therefore relatively illiquid. ItÆs of less interest to investors who have to mark-to-market and rely on dealers to provide some liquidity,ö says one investor.

But the bonds could present an attractive trading opportunity given KomipoÆs performance selling to Asia and Europe only. Those bonds priced at 198bp over mid-swaps and the participation of the US in this latest deal may provide added momentum to KospoÆs bonds in secondaries.

However, one source on the buy-side says: ôFaster money won't want the hassle of this trade. They are still licking their wounds and are too aware of bond illiquidity. Things could turn very quickly. They would probably rather focus their efforts on private deals that offer greater risk/return.ö

Meanwhile in the Korean markets, Export-Import Bank of Korea (Kexim) planning a samurai bond via Daiwa SMBC, Nikko Citi and Nomura, which will likely price in the next couple of weeks following a Japan roadshow.

Kookmin Bank is also considering a second attempt in the Japanese market for a two-year fixed-rate and two-year FRN transaction of Ñ10 billion ($97 million) via JPMorgan, Mizuho Bank and BNP Paribas due to price on Wednesday. Guidance has been released in the range of 160bp to 170bp over mid-swaps.

Furthermore, Korea Development Bank is marketing a SFr150 million ($149.7 million) five-year bond deal via BNP Paribas.
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