Samurai debut from Korean genco sector

Korea East-West Power sets a new benchmark in Japan with second lowest corporate coupon from Korea.

Korea East-West Power has enjoyed a decent debut in the Japanese samurai market with its Y20 billion ($170.5 million) five year issue. The deal was joint lead managed by CSFB and Daiwa.

The bond was launched with a coupon of just 1.33% which makes it the second lowest coupon by a Korean corporate issuer in the Samurai market - after Korea Gas, which issued last year at 1.21%. It is the first of the power gencos to tap the samurai market.

The coupon looks particularly favourable when compared with where Korea East-West Power can borrow in the domestic Korean bond market. It can borrow five-year fixed rate money at 5.2%. Given the high correlation between the yen and the won, a lot of Korean borrowers have chosen not to swap their yen proceeds back into fixed rate won and thus enjoy short term interest savings (with attendant currency risk). However, even if it chooses to hedge back into fixed won, Korea East-West Power would still enjoy a 10-20bp saving via its current yen borrowing.

The deal equated to yen libor plus 110bp and was institutionally targeted.

It was Korea East-West Power's first international funding exercise, and on swapped basis came flat to Korea Hydro, which has traditionally been viewed as the best credit among the gencos. However, Korea East-West Power has the largest generating capacity in Korea (outside of the nuclear sector) and thus the most revenues.

The company was said to be keen to establish a benchmark in yen for other gencos to follow.

The deal was 1.5 times subscribed and saw 60% of its demand come from Japan with 20% from Korea, 15% from Hong Kong, and 5% from Singapore. Banks made up the biggest buyers by account type, taking 50%, followed by insurers who took 30% and asset managers 15%.

One revolutionary part of the deal was its break with an expensive samurai convention. Normally these deals require the use of a commissioned company for bondholders, who act as trustees and as paying agents and charge around Y50 billion for the service. In this case only a fiscal agent was used, leading to large cost savings. Lead manager, CSFB says this change did not prove problematic for any of the 25 accounts who bought the deal.

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