South Korea is set to solidify its position as the world’s most active jurisdiction for sustainability bond issuance this year after two more companies join the streak of bond sales this week.
Steel giant POSCO and state-owned gas supplier Korea Gas are the latest to join six other institutions, including Kookmin Bank, Korea Development Bank and Korea Housing Finance to issue sustainability bonds this year. The Ministry of Economy and Finance was also one of the issuers, having raised $500 million from a sustainability note sale in early June.
Meanwhile, Shinhan Financial Group has mandated a group of investment banks to explore the possibility of issuing a Basel 3-compliant Tier II subordinated sustainability bond.
These institutions are responding to calls from the government to issue sustainability notes as the country strives to improve its sluggish economy by supporting small and medium-sized enterprises that support low-income communities.
Unlike green bonds, which typically target environmental issues, sustainability bonds are usually used to finance projects that bring socio-economic benefits.
Seoul hopes that proceeds from sustainability bonds will help mitigate some of the country’s long-standing problems including a large income gap, high youth unemployment and poor gender equality.
The two new issuers coming to market this week are symbolic to the country’s sustainability drive because they are the first group of non-financial institutions to the asset class this year.
In fact, only three non-financial institutions have previously issued sustainability bonds in the country’s history, namely Korea East-West Power, Korea Railroad and Lotte Property & Development.
POSCO, rated BBB+ by S&P and Baa1 by Moody’s, was the first to market by raising $500 million from a five-year bullet on Tuesday. The world’s fourth-largest steel maker managed to put together an order book of $1.9 billion from over 100 accounts, distribution statistics show.
Final pricing of the Reg S/144A deal settled at a 2.75% coupon and a 2.874% yield at 99.426% reoffer. That represents a spread of 105 basis points over five-year US Treasuries compared to the initial guidance of 130bp at launch.
POSCO intends to use the proceeds to finance existing projects in electric vehicle batteries and renewable energy, and those that support employment for the underprivileged. It will also use proceeds to support small and medium-sized enterprises and startups.
Bank of America Merrill Lynch, BNP Paribas, HSBC and Standard Chartered were joint bookrunners of POSCO’s bond sale.
Korea Gas followed a day later with its own $500 million 10-year bullet which attracted $2.8 billion from 136 accounts. The AA-/AA-/Aa2 rated company launched the deal as part of its $11 billion medium-term note programme.
The Reg S/144A deal launched at an initial price guidance of 120bp over the risk free rate before tightening substantially to 92.5bp. Final pricing settled at a 2.875% coupon and a 2.978% yield on 99.115% reoffer.
BNP Paribas, Citigroup, HSBC, Korea Development Bank and Bank of America Merrill Lynch were joint bookrunners.