Kowepo powers new deal through the international debt markets

After an accelerated bookbuild, Barclays and Deutsche price the third bond deal of the year for a Korean genco.
Barclays Capital and Deutsche Bank priced a $150 million 10-year bond deal for Korea Western Power (Kowepo) on Tuesday. The deal marks the return of this genco to the international capital markets which last priced a deal in December 2002.

That deal was a five-year offering, led by ABN AMRO and Lehman Brothers, meaning that the newest deal is the longest-dated bond for the borrower.

The Reg-S only deal was announced on Monday morning and priced a mere 48 hours later, a far cry from the difficulty that had hindered the company's last transaction which was delayed a week with indicative pricing widening before it was finally concluded. Although, the deal's difficulties were more to do with saturation in the five-year space at the time rather than overall execution.

The new deal, rated A1/A-/A-, prices at the tight end of guidance. When the leads announced the deal, investors were given a guidance of 55bp to 60bp over mid-swaps. By the time the book closed, pricing was set at 98.964% with a semi-annual coupon of 5.5% giving a yield of 5.637%. On a spread basis that equated to 55bp over mid-swaps, 107.4 over benchmark US Treasuries or 53bp over Libor.

The order book closed 1.5 times oversubscribed with a total of 22 accounts taking part. Geographically, the deal saw good traction in Europe with 47% of the bonds going to European based accounts. Another 37% went to domestic accounts and the remaining 16% headed to other Asian accounts. By investor type, banks including central banks took 62%, insurance companies 32%, asset managers 5%, and the remaining 1% went to others.

In terms of comparables, bankers quoted Korea Midland Power (Komipo) and Korea South-East Power (Kosepo), both of which printed 10-year transactions earlier this year.

KomipoÆs deal, a Reg-S 144a $200 million March 2016 offering via Credit Suisse and UBS, initially priced at 98.364% on a coupon of 5.5% to yield 5.717%, representing a spread of 97.5bp over Treasuries or 42bp over mid-swaps. On Tuesday afternoon, that deal was trading at 106bp over Treasuries or 54bp over Libor.

KosepoÆs deal, a Reg-S 144a $300 million May 2016 bond led by Barclays Capital, Citigroup and Credit Suisse, initially priced at 99.208% on a coupon of 6.0% to yield 6.107%, or 99bp over Treasuries or 47bp over mid-swaps. That deal was quoted at 107bp over Treasuries or 55bp over Libor on Tuesday afternoon.

That means, on a curve adjusted basis for the 6-month extension, KowepoÆs new deal prices inside both of the previous genco deals.

Kowepo will use the proceeds from the sale for general corporate purposes, including the purchase of imported fuel and equipment. Kowepo is one of the six wholly owned thermal electric power generation companies spun off from Korea Electric Power (Kepco) in April of 2001. Still fully owned by Kepco, Kowepo has a 100% off-take agreement with its parent.

Kowepo is one the strongest of the non-nuclear spin-offs. However, having implemented an aggressive capital investment plan in 2004, which involves investing W860 billion ($900 million) over a two-year period, it could see its leverage position slide somewhat.

In its most recent ratings report, S&P stated: ôSome slippage in leverage is likely, although not beyond a debt-to-capital ratio of about 35%, and a total debt to Ebitda of 1.9 times to 2.3 times over the next few years. Despite the margin pressures faced by the company this year, Kowepo should be able to maintain stable cash flows, backed by continued growth in electricity demand and provision of 100% of its supply to parent company Kepco.ö
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