Seoul scores in Japan

The City of Seoul sells its inaugural Samurai issue.

The City of Seoul has ignited the somewhat moribund Samurai market with an inaugural Y48.5 billion ($404 million) issue. The deal is structured with five tranches and the proceeds will be used to refinance existing yen liabilities that the City has. Nomura was sole bookrunner on the deal.

  • The first tranche is due for repayment in December 2003 and is for Y12.5 billion. It carries a coupon of 0.39%, which equates to a spread over swap levels of 27bp.
  • The second tranche is due for repayment in December 2004. It is Y11 billion in size and carries a 0.6% coupon, equating to a 44bp spread to swap levels.
  • The third tranche is due in December 2005 and is Y10 billion in size. It has a coupon of 0.77% giving a 55bp spread over swaps.
  • The fourth tranche is due in December 2007 and is also for Y10 billion. It has a coupon of 1.06%, equating to a 70bp spread over swaps.
  • The fifth tranche is due in December 2009, is Y5 billion in size, has a coupon of 1.37%, giving a spread over swaps of 79bp.

Standard & Poor's and RNI rate the City of Seoul A-. The credit is backed by a variety of metropolitan revenues including tax receipts. It only has one outstanding dollar bond, which is highly illiquid being locked away in investors' vaults, rarely trading. Pricing of this deal is said to have come flat to KDB's recent Samurai issues.

According to bankers close to the deal, the first three tranches of one, two and three year maturity were sold mainly to retail accounts, who were attracted to the relatively high coupons they could get on this deal compared to bank rates. The longer dated tranches were sold almost exclusively to institutions.

In particular the retail accounts were attracted by the dynamic image that Seoul has at present with the Japanese public. The World Cup was a huge success for both countries, but the feverish excitement in Seoul was not repeated as strongly in Japan. Korea is seen very positively in Japan these days as the Japanese struggle to emerge out of a 10-year slump while the Koreans roar ahead with 4%-5% annual GDP growth rates.

That this is the first time Seoul has issued in yen is somewhat suprising. Other Korean cities such as Pusan and Daejon are regular issuers, with Daejon having issued a 10-year bond last October. But observers say the success of this issue should encourage the City to return to the Samurai market. "They have been very encouraged by what they can achieve in the yen market," said one banker close to the deal. "It has been very quiet in the Samurai market this year, so it is great to have such a highly rated new name come to the market and do so well."

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