Tightly priced KDB bonds perform in aftermarket

KDB prices $750 million worth of bonds inside its secondary curve with a book heavily laden with US investors. Elsewhere, CLP Power and Sunac China meet investors.

Korea Development Bank (KDB) early yesterday morning became the first Korean issuer to tap the US dollar bond market this year with a $750 million 5.5-year bond.

The initial guidance was in the area of Treasuries plus 205bp, but the joint bookrunners – Bank of America Merrill Lynch, HSBC, KDB Asia, Royal Bank of Scotland, Standard Chartered Bank and UBS – priced the bonds to yield Treasuries plus 195bp, which is at the tight end of the final guidance of Treasuries plus 200, plus or minus 5bp. But the bonds performed well in the secondary market despite the keen pricing.

According to one Hong Kong-based trader, the bonds were at Treasuries plus 190bp/191bp yesterday morning, about 4bp inside the issue spread.  

“We’re not seeing any flipping,” the trader said. “The US accounts took up a big chunk of the book and they are holding onto the bonds. This is also the first Korean issuance this year so there is demand.”

With the bonds performing well in secondary, KDB has set a positive tone for the hordes of Korean borrowers that are waiting to blitz the US dollar bond market in coming weeks.

KDB had indicated that $1 billion was the most it would borrow and, with an order book of $3.75 billion from more than 200 accounts, it could easily have raised that much. But it surprised investors in the end by choosing to go for a smaller print.

“I think the KDB deal looked a bit expensive,” said Rajeev de Mello, head of investments and operations at Western Asset Management in Singapore. “They tightened pricing and I’m a bit surprised they cut the size from the $1 billion that was expected. But the bonds have performed and KDB got a pretty good pricing at 4%.”

The issue is rated A1/A/A+ by Moody’s/Standard & Poor’s/Fitch.

The bonds priced inside KDB’s secondary curve – its August 2015s and its March 2016s were trading at z-spreads of 159bp and 156bp, respectively, while the new KDB bonds, which mature on September 9, 2016, came at a z-spread of 155bp. A z-spread is a measure of credit spread without the distortion of a yield-to-maturity calculation.

Meanwhile, the curve between the US Treasuries due March 2016 and the Treasuries due September 2016 was worth about 17bp to 18bp, according to a banker. In comparison, the new KDB September 2016s came only about 9bp behind its March 2016s.

US investors took the biggest chunk (46%), followed by Asia (40%) and Europe, the Middle East and Africa (14%). Fund managers bought 47%, banks 16%, central banks 15%, insurers 12%, corporates 3% and private banks/others 7%.The SEC-registered bonds were reoffered at 99.512 to yield 4.10%, with a fixed coupon of 4%.

Away from the KDB deal, quite a few issuers have been waiting for market conditions to improve before tapping the bond markets. "It's a bit tough for issuers as they had to suspend issuance in late January for the Chinese New Year break and then there was the situation in the Middle East which has added uncertainty," added de Mello.

CLP Power Hong Kong has appointed Barclays Capital and Standard Chartered Bank to arrange a series of fixed income investor update meetings. The meetings are expected to start on March 7 and the company will be holding meetings in Hong Kong, Singapore and London. It was rumoured that the company was looking to issue a perpetual bond, but, according to a source, it is planning to issue a long-dated US dollar bond.

In China high-yield, property developer Sunac China Holdings is planning a US dollar Reg-S/144a five-year senior note. It will hold roadshows in Hong Kong on March 7, Singapore March 8, London March 9, New York March 10 and Boston on March 11. The expected issue rating is B+ by Standard & Poor’s and BB- by Fitch. Deutsche Bank, Goldman Sachs and Standard Chartered Bank are joint bookrunners.

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