NACF completes debut dollar sub debt issue

Government-owned institution follows IBK into the sub debt sector.

The National Agricultural Co-operative Federation (NACF) priced a debut $250 million lower tier 2 deal yesterday (Thursday) via lead managers ABN AMRO, Credit Suisse First Boston and HSBC.

Pricing came at 99.508% on a coupon of 5.75% to yield 5.865%. This equates to 183bp over Treasuries, or 138bp over Libor. Fees were 30 cents.

At 138bp over Libor, the deal came at a roughly 70bp premium to the bank's June 2008 senior debt deal, which was trading at 68bp over Libor and 90bp over Treasuries at the time of pricing. It also came at a 15bp to 17bp premium to its main comparable - a $200 million sub debt deal for IBK, priced this Tuesday. This was being variously quoted at 121bp to 123bp over Libor yesterday.

For NACF, completing a deal must have been a relief after seeing its first attempt die on its feet last week. However, whereas strong momentum propelled Korean deals to re-price the market ever tighter earlier in the year, the latest two deals appear to have re-priced Korean spreads wider.

This is hardly surprising given the losses investors have suffered over the previous two months and their current skittishness towards all new primary market offerings. IBK's previous sub debt deal has, for example, traded down to 93% since launch and once news it might do another deal surfaced late last week, the deal widened another 6bp in Libor terms. In turn, NACF needed to price at the wide end of its historical trading range relative to IBK if it wanted to successfully clear the market.

When NACF first completed a $400 million five-year senior debt deal in June 2003 it priced at a 5bp to 7bp premium to IBK on a like-for-like basis. Since then it has averaged 10bp to 15bp in the secondary market.

IBK's new sub debt deal priced at a 50bp premium to its outstanding senior debt and carries a 5.75% coupon on an issue price of 99.738% to yield 5.804%. At launch this equated to 187bp over Treasuries or 120bp over Libor.

Like IBK, NACF managed to garner an order book of about $800 million. It also managed to attract a similar number of accounts - 58 versus 60 for IBK.

Geographically, the book split 36% Singapore, 23% Korea, 20% Hong Kong, 18% Europe and 3% rest of Asia. By account type, banks took 60%, asset managers 31% and insurance/retail 4%.

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