The Export-Import Bank of Korea (Kexim) heralded the new year with a $2.25 billion dual-tranche bond on Thursday, raising close to a quarter of its total funding requirements for 2012 in one swoop. Its decision to tap early was driven by its view that credit markets will remain unpredictable.
“We’ve seen so much market volatility," said Yoon-Yung Kim, chief financial officer of Kexim in a phone interview with FinanceAsia. "You never know what will happen. Yesterday, we saw that markets were quite constructive so we went out."
"Last year we raised $10 billion equivalent and this year our funding requirements are between $10 billion to $11 billion. Every year, our funding needs get bigger and we wanted to raise $1.5 billion to $2 billion this time. To meet our target size, we decided we needed to do a dual-tranche bond," he added.
According to Kim, the bank had considered issuing in Swiss francs as well as Japanese yen but as its funding requirements are in US dollars, it would have to swap the proceeds. The bank plans to raise about $5 billion through the dollar market this year, which includes the $2.25 billion it has already raised.
The deal comprised a $1.25 billion five-year and a $1 billion 10.25-year bond. The five-year piece priced at Treasuries plus 315bp while the 10-year piece priced at Treasuries plus 305bp. Atypically, Kexim has an inverted yield curve which means that its outstanding 10-year bonds trade at a lower spread over Treasuries compared to its five-year bonds. Both tranches priced at the tight end of final guidance as Treasuries plus 315bp to 325bp for the five-year and Treasuries plus 305bp to 315bp for the longer bonds.
According to one person familiar with the deal, Kexim was offering investors a rare dual-tranche bond which offered the opportunity to participate in a 10-year tenor. "There is so little supply in the 10-year space from Korean banks while the five-year space is very crowded in contrast," he said.
Thanks to the limited supply, the 10-year bonds performed better than the five-year bonds. “The five-year bonds have weakened, we’re seeing them at Treasuries plus 320bp. On the other hand, the 10-year bonds are trading very well, they priced at Treasuries plus 305bp and they are trading at Treasuries plus 300bp. I think we’re going to see demand out of the US overnight," said one Hong Kong-based credit trader.
When asked if he thought Kexim should have left more money on the table for investors for the five-year tranche, Kim said: “We are a frequent issuer so we don’t want to disappoint investors. But the economic conditions in Europe affect us. The 10-year bonds did quite well and we last saw the five-year bonds at Treasuries plus 316bp.”
Kexim last tapped the market in September with its $1 billion 10-year bond via Bank of America Merrill Lynch, Credit Suisse, Daiwa, Goldman Sachs, HSBC and J.P. Morgan as joint bookrunners. Woori Investment & Securities was a joint lead. While many had expected that the September deal would re-open the market, conditions turned soon after the issue, and those bonds are currently trading about 30bp wide of their issue spread.
“It’s very hard to predict what will happen with the situation in Europe. Our credit does not change but the European debt situation affects the performance our bonds. There was a lot of volatility in the market last year and this affected the performance of our bonds. We think that if the situation improves, the bonds we issued last year will perform," said Kim.
BNP, Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC and Royal Bank of Scotland were joint bookrunners on Kexim's latest deal.
The five-year tranche gathered an order book of $3.4 billion from over 280 accounts. US investors were allocated 43%, Asian 41% and European investors 16%. By investor type, fund managers were allocated 45%, private banks 22%, insurance/pension funds 14%, corporates and others 13% and central banks 6%.
The 10-year tranche gathered an order book of $3.4 billion from over 200 accounts. US investors were allocated 40%, Asian investors 44%, European investors 16%. Fund managers were allocated 63%, banks 8%, insurance/pension 21%, private banks 4%, central banks/others 4%.
The coupon for the five-year tranche was fixed at 4% and the bonds were reoffered at 99.807 to yield 4.043% to January 11, 2017. The coupon for the 10-year bonds was fixed at 5% and the bonds were reoffered at 99.627 to yield 5.048% to April 11, 2022.
The Export-Import Bank of Korea was established in 1976 and is one of three policy banks in the country.