Shinhan prices first Kangaroo bond

The Korean bank prices at the wide end of guidance, but doubles the size of the fixed and floating deal to A$400 million.
In a rare event for an Asian issuer, KoreaÆs Shinhan Bank has tapped the Australian dollar market with a three-year two-tranche transaction managed by Macquarie and TD Securities. The A-/A1 rated issuer priced the A$150 million fixed-rate tranche to pay a coupon of 6.875% and the A$250 million floating rate-tranche to pay BBSW plus 30bp quarterly.

The deal priced at the wide end of the 28bp-30bp range because it was ShinhanÆs first foray into the market and Kangaroo investors are generally unfamiliar with Asian names. ôAs a new issuer, Shinhan paid a little more to come to a new market and to attract new investors that havenÆt bought the credit before,ö says a source.

Investors were keen to play, however, and the deal was oversubscribed, allowing Shinhan to upsize the trade from an initial goal of A$200 million to a total of A$400 million. ôThe book was opened on Tuesday and was closed by late Wednesday afternoon, which was good timing given the public holiday in Korea on Thursday,ö says the source.

A total of 27 accounts bought into both tranches. Shinhan achieved its diversification objective, selling 61% of the bonds to domestic investors û mainly fund managers and financial institutions. The bulk of the rest of the bonds were sold to Asian buyers. ôDomestic participation was an important result for Shinhan, as it provides further diversification of its funding sources across currency and geography,ö says the source.

Shinhan canvassed the market in April with a week-long roadshow taking in AustraliaÆs major cities. The only other Korean name with a history in the Aussie debt scene is Korea Development Bank which has tapped the market twice. In 1996, KDB issued the first ever Kangaroo bond, which then widened to 1,000bp over swap during the Asian financial crisis. It then returned to the market in 2003 with a A$150 million three-year floating deal that priced at 53bp over BBSW.

ôThere hasnÆt been a lot of Asian banks issuing in the Kangaroo market because of the credit appetite displayed by local investors,ö says a source. ôInvestors want investment grade paper û at least single-A. And, to be honest, there arenÆt many issuers in the single-A band. The most active Kangaroo issuers are either triple-A rated European borrowers or double-A banks from the US.ö

Due to the rarity of the transaction, drawing pricing comparisons was difficult. Investors looked at a deal completed by Emirates Bank (rated A/A1) in November last year which is now trading at 33bp over swaps. The three-year A$125 million fixed and A$125 million floating transaction was the first Kangaroo from a Middle Eastern institution. ôInvestors also used the CDS market to get some sense of where relative value was,ö says the source.

Bond arrangers are now hoping other single-A Asian credits will consider the Australian market. ôSometimes it takes a lot of work to convince an issuer of the benefits of issuing in Australia, but I think ShinhanÆs success at diversifying its investor base will certainly attract some attention from other banks in Asia,ö says a source.

The settlement of ShinhanÆs transaction takes place on June 8, with the bonds due on June 8, 2010.
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