Shinhan prices new tier-2 sub debt.

Preparing to merge with sister bank, Chohung, Shinhan issues a new tier-2 sub debt offering to achieve new CAR targets.
Shinhan Bank priced a subordinated upper-tier 2 offering yesterday (February 22) raising $300 million via Barclays Capital, BNP Paribas and HSBC. The Reg S deal, issued off of ShinhanÆs $3 billon global MTN programme is structured as a 10-year non-call five-year, with a step up coupon.

The leads went out to investors seeking a range of 72bp to 77bp over swaps, but as the book gathered momentum they were able to tighten pricing. The deal was priced inside of initial guidance at 99.901% on a coupon of 5.75% to yield at 5.773%.

This equates to 71bp over swaps or 121.5bp over five-year treasuries. The coupon will step up to 221.5bp over Treasuries if not called on its fifth payment date - February 28, 2011. Fees were undisclosed.

The major benchmark for this deal is ShinhanÆs own outstanding $250 million subordinated upper-tier 2 10-year non-call five-year deal That deal is a 6.25% September 2013 offering, which was quoted yesterday at 69bp over mid-swaps. Specialists estimated the curve differential to be worth 5bp, meaning the new deal has priced 3bp inside the outstanding deal.

The deal attracted a huge order book of $1.6 billion, an oversubscription ratio of 5.3-times, with 97 accounts taking part. Geographically the book leaned toward Asia, with 60%. Europe accounted for the other 40% of total allocations.

In terms of account type, banks bought half of the total, with the remainder going to asset managers 37%, insurers 8%, and 5% others.

Shinhan has a strong track record with international investors and has historically enjoyed significant support from Europe. Its most recent deal - a hybrid tier-1 30-year non-call 10-year - garnered an order book that closed 10-times oversubscribed last February with 43% being allocated to European accounts.

Heading into the roadshows last week, there had been some investor concern over the bankÆs forthcoming merger with sister bank Chohung Bank (CFB), which is scheduled to be finalized April 1.

Bankers say investors grew more comfortable as roadshows progressed. Both banks are said to have strong stand-alone positions, not to mention the continued support of parent Shinhan Financial.

According to FitchÆs most recent ratings report, ôin 2005, both Shinhan and CFB posted robust operating performances; Shinhan reported W774 billion in net income giving a 18.3% ROE and 1.03% ROA, while CFB registered W757 billion in net income resulting in a 24.0% ROE and a 1.16 ROA.ö

Fitch also noted, ôCFBÆs significant improvement in asset quality. At end of 2005, itÆs NPL ratio stood at 1.1% versus 1.9% at the end of 2004, and its improved profitability was mainly due to considerably lower credit costs.ö

ôWe are pleased to see the good response from investors in Europe and Asia which I believe demonstrates strong confidence in the new Shinhan Bank to be launched this April,ö comments MC Kim, General Manager of Shinhan Bank's Treasury Dept. ôIn addition, we're delighted to achieve the tightest spread ever for a bank capital offering from a Korean commercial bank."

As of June 2005, ShinhanÆs Capital Adequacy Ratio (CAR) was 12.34%, and it had a tier 2 ratio of 3.61%. Although well within the regulatory minimum, the combined CAR of the two entities at the end of 2005 was 11.2%. This new deal is expected to bolster the capital adequacy and tier 2 ratios to 12% and 8%, respectively.