Reports of problems with Koromas deal untrue, says ADM Capital

We retract the claim made in yesterday''s story.

ADM Capital, one of the companies involved on the Koromas Fund deal, the $285 million collateralized bond obligation designed to help Korean small and medium-sized companies access the international capital markets, has strongly disputed claims made on FinanceAsia yesterday that the transaction had hit difficulties.

These claims were listed in a FinanceAsia story yesterday, "First Korean cross-border primary CBO gets warm reception." We are retracting the claim having obtained more detailed information from ADM Capital.

ADM Capital worked alongside Tony Yang Investment, TD Securities and the Korean Development Bank to bring the deal to market. The fund had strong government backing as it was sponsored by the Small and Medium Business Administration, a department of the Ministry of Industry and Energy.

An official at ADM Capital says that the deal was fully placed early last week. "The deal was closed on November 26, which we believe makes it the first international CBO to be launched out of Korea," the official comments. "It was fully placed with investors, so I do not know why anyone would say there were problems with it."

The official also dispels rumours that TD Securities had dropped out of the offering before launch or that the issue did not get rated by international credit rating agencies. "TD was involved as one of the international placement agencies alongside Tong Yang as originally planned," he adds. "Koromas also got Moody's and Standard & Poor's ratings equal to the sovereign rating, Baa2 and BBB+."

The Koromas Fund raised money for 59 Korean SMEs in a three tranche deal with the senior A-class notes and C-class notes sold to international investors together. The A-notes come with a KDB credit wrap while the C-notes are backed by the equity of companies included in the fund. The B-class junior notes were sold to Korean investors without the KDB wrap.

The proceeds of the note issue were used to buy a series of Eurobonds with warrants attached from the pool of 59 SMEs. These bonds were then sold to the fund with the warrants equal to 20% of the individual company's market capitalization.

Investors who bought a piece of the deal have essentially bought a CBO with a KDB wrap plus the upside equity potential of 59 Korean companies. The coupons and yields on the underlying Eurobonds were set at market rates, as were the terms of the warrants.