The refinancing game

With a bulging pipeline borrowers are racing each other to get their deals out in the market first.

Loans are not repaid - they are refinanced. This has been the mantra of the Korean banking sector since recovering from the country's financial collapse in 1997.

Last year there these credits were conspicuous only by their absence as investors refused to purchase any more paper. This was attributed to the constant bullying of banks to price deals inside their counterparts.

Woori Bank tried to get a jump on its rivals by sending out RFPs in mid-December. The bank hoped to issue a mandate last year so that syndication could be launched right at the beginning of 2004.

A number of banks replied, these included Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Citigroup, Commerzbank, HSBC and Sumitomo Mitsui Banking Corp. The mandate was, however, delayed until the new year.

The whole transaction has now been put on the back burner following the news of the mandate for a $500 million 144a sub-debt issue. CSFB, JP Morgan and Merrill Lynch are running the books on the deal which is set to be launched shortly.

This has left the door open for other Korean borrowers to set 2004 benchmarks in the loan market. Market observers point out that there are plenty of candidates with refinancing requirements this year.

Kookmin Bank has been one of the first to test the water, issuing RFPs last week for a $200 million one and two year financing. Dealogic figures show that the bank has around $470 million maturing this year, of which $275 million expires in the first quarter.

The last US dollar fundraising for the borrower was a $155 million one, two, three and five year facility completed in May 2003. Margins on the one and two year portions were 15bp and 22bp respectively.

A few banks have been looking at the transaction and are preparing bids due to be submitted by the end of this week. No set date for a mandate has been indicated, but with Chinese New Year fast approaching bankers anticipate any deal won't emerge until the end of the month.

Others may be preparing to tap the market as well. At the top of the list is Kexim, which has some $660m due this year. While only $250 million is due in the first quarter, analysts suggest that much of the refinancing may be completed in this period.

The list continues with KDB, KorAm Bank and Korea Exchange Bank all having sizeable amounts of debt maturing in 2004. Some market observers also expect to see a number of corporate players looking for loans including LG Philips Display who has some $650 million due in the first half.

After a relatively quiet 2003 - just $2.2 billion being raised compared with $4.5 billion in 2002 - loan syndicators are eagerly awaiting the first bank deal in the market. Some are wary that continued high liquidity and the resurgence in the bond market may force pricing down.

Bankers suggest that this is not the case as rising interest rates will pressurise the bond market, forcing more banks to come to the loan market for funds. This will mean pricing is likely to stay in line with the levels recorded in 2003. Observers say that if this is the case then investors will be falling over each other in the rush to book these assets.

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