NACF bond performs well despite fears of a weak dollar

The National Agricultural Cooperative Federation prices the tightest ever Korean lower tier-2 bond.
The banking division of Korea's National Agricultural Cooperative Federation (NACF) priced its lower tier-2 $500 million bond issue yesterday. The deal came in at 41bp over mid-swaps, at the mid-point of a revised guidance released Thursday morning of 40bp-42bp. This followed TuesdayÆs initial guidance of 42bp. ABN AMRO, BNP Paribas, Citi and HSBC led the deal which closed with a coupon of 5.375% semi-annual, a price of 99.892 and a yield of 5.4%.

The 10-year non-call-five Reg-S issue, rated A- stable/Baa1 positive, attracted an $860 million order book, eventually allocating bonds to 47 investors. NACF sold 82% of the bonds to Asia Pacific, 17% to Europe, and 1% to US offshore, with 32% given to asset managers, 55% to banks, 11% to insurance companies, and 2% to retail and other. The smallest order stood at $0.5 million. The biggest was undisclosed.

According to sources, the transaction showed an encouraging level of participation from investors seen during the roadshow in Hong Kong, Singapore and London.

In terms of comparatives, sources quoted NACFÆs own outstanding June 2016 non-call 2011 (6.125%) as the most relevant. This was trading at 42bp over Libor. The federation also has a June 2014 (5.75%) and a May 2015 (5.125%), which are trading at 36bp and 41bp over Libor respectively. YesterdayÆs offering priced through its own curve.

ôWe have seen some weakness in the market. Considering equity volatility, wider credit spreads, and diminished risk appetite as seen over the last few days, this deal performed remarkably well,ö says one source. Hana BankÆs BBB+/Baa1 April 2017 non-call 2012 (5.875%), which was trading at 42bp at announcement of guidance, was trading yesterday at 44bp as a result of a weak dollar and unforecast growth (and inflation) in China.

This benchmark deal is the biggest volume issued by NACF. The 2014 bond issue (ABN AMRO, CSFB, HSBC) was $250 million in size, while the 2015 issue (Barclays, BNP Paribas, JPMorgan) and the 2016 issue (BNP Paribas, Calyon, Merrill Lynch) were both $400 million.

A commercial bank with a policy role in Korean agriculture, NACF (A3/A) is one of the five specialist institutions in Korea. On March 21, Standard and PoorÆs upgraded the bank from A- to A due to its improving stand-alone asset quality, and strengthening capitalisation. Established in 1961 under the constitution of Korea and the agricultural cooperative law, the bank is not 100% government-owned nor protected by government guarantees (as are KDB and Kexim). However, the bankÆs systemic importance implies significant government backing should it fall into financial difficulties.
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