SK Energy bond offer raises $450 million

The Korean refiner has to scale back the size of its bond offer by $50 million but, in the end, attracts 60 investor accounts.
SK Energy priced a $450 million bond last night despite a spike in Asian credit spreads. Investors agreed to buy the five-year bonds at a 7.125% yield, which was in line with underwriters' expectations earlier in the week.

Discussions with investors started in earnest on Monday, just after the US government announced the biggest jump in unemployment for 22 years. And as if that wasn't bad enough, rising oil prices and inflation were spurring fears that central banks across the region would be forced to continue hiking interest rates. As a result of all this, the iTraxx index of Asia-Pacific investment-grade credit default swaps has widened by almost 20bp this week to end at 138.5bp yesterday.

Bankers say that deals can still get done in these conditions, but it is a challenge. "This is not a market for opportunistic borrowers," says one debt specialist. "You're not going to see a Kexim or a Hutch come out with a deal right now, but borrowers that need real funding know that volatility isn't going to go away."

SK Energy had intended to raise a maximum of $500 million, but in the end had to scale that back to $450 million. The bonds were printed with a 7% coupon and were sold to investors at 99.111% of their face value to give the yield of 7.125%, which is 275bp over mid-swaps and roughly 368bp over US Treasuries.

When compared to the bonds issued by comparable oil refiners, that pricing suggests SK Energy is paying a slight new-issuer premium û bonds due 2014 issued by GS Caltex, which is rated one notch higher at BBB+, were trading at 250bp over Libor at the time of pricing.

Orders for the deal totalled roughly $830 million and, in the end, bankers allocated the bonds to 60 accounts, 70% of which are based in Asia and the rest from Europe. The bonds were not offered to US investors. Most of the buyers were banks, which accounted for 55% of the orders. Asset managers took 30%, insurers and pension funds 12% and retail and others 3%.

Five banks worked on arranging the deal: Citi, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS.
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