Shinhan Card prices $400 million FRN

The deal proves an easy sell to investors, pricing at levels that bankers believe will allow for healthy secondary market performance.
Korean credit card company, Shinhan Card, sold $400 million worth of senior unsecured notes for the first time last night, pricing at the tight end of guidance set between 50bp and 55bp over Libor. The Reg-S, BBB+/BBB+ (Standard and PoorÆs/ Fitch) five-year FRN closed at par with a coupon of 50bp over three-month Libor, which bankers believe will allow for healthy performance in the secondary market.

ABN AMRO, Bank of America, BNP Paribas and Goldman Sachs managed the deal.

73% of the bonds sold to Asia, and 27% to Europe. 73% were allocated to banks, 20% were allocated to funds, and 7% to official institutions (unspecified). The transaction generated over $1.1 billion in demand making it 2.75 times oversubscribed, with participation from 70 accounts.

In terms of comparables, bankers quote HyundaiCard as being the most relevant. HyundaiCard's April 2010 FRN is currently trading at 46bp over Libor. Bankers believe a five-year HyundaiCard deal would probably trade between 56bp and 58bp over Libor, calculating each year as being worth five to six basis points. A source close to the deal also quotes LG ElectronicsÆ five-year FRN which was trading at 75bp over Libor at the time of pricing. However, despite being from the same country, and of the same tenor, format and domestic rating, the two companies are very different and not quite comparable.

The Shinhan Card roadshow, which took place this week, encompassed Singapore, Hong Kong and London, and was unfortunately timed during a four-day week in the UK, leaving investors from this country a shorter time to examine the credit. The effect of this is visible in the investor breakdown, with the UK buying 50% of the European allocation, instead of an expected 65%.

However, bankers say that the hit rate was high, and that there were no real challenges in selling the credit. A Fitch report states that Shinhan Card has demonstrated high profitability and proven prudent risk management. Says one investor: ôThe Koreans have thoroughly cleaned up their act since the card crisis. Shinhan Card is a yielding asset with an acceptable rating, and best of all itÆs an LBO-free name.ö The planned merger with LG Card will further enhance the franchise.

The preliminary offering document states that Korean credit card companies have shown significant improvements in operating results since the 2003 consumer credit crisis, which led to significant developments in credit screening, risk management and collections. Regulations now demand that credit card companies maintain a capital adequacy ratio or 8% or more. The issuerÆs capital adequacy ratio was 17.5% as of December 2006.

The structure was also key to the sale. Given the large number of banks in the investor breakdown, a FRN structure was advised. In addition, the inverted yield-curve in the US encourages investors to favour a floating-rate note, since the coupon is higher in the intermediate-term than a fixed-rate offering.

Shinhan Card is part of the Shinhan Financial Group.
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