Kia Motors bond

US demand fuels Kia Motors' $500 million bond

The controversy surrounding Sino Forest hangs over investors, but investment-grade borrower Kia Motors crosses the line with a $500 million bond.

Asia’s G3 bond market has been on a shaky footing during the past week, thanks to a confluence of events, from the debt crisis in Greece and weak equity markets to the disappointing US non-farm payrolls data released last Friday.

In particular, the high-yield bond market — on a roll so far this year — has been vulnerable to bad news. Investors were rattled by a research report released last week by short seller Carson Block on Toronto-listed Chinese company Sino Forest, questioning the company’s audited accounts and business model.

The company has since denied these allegations, but investors remain wary and are becoming disenchanted with the sector.

“Sino Forest was supposed to be one of the better names in the market,” said one investor. “Their investor relations team has always been proactive. And now this: It makes you question if other China high-yield companies are facing the same issues.”

Amid less than sanguine market conditions, the handful of companies that were on the road last week — including NTPC, Kookmin Bank, Korea South East Power and CLP — all now appear to be in limbo.

However, Kia Motors, early yesterday morning priced a $500 million five-year bond, in a deal that demonstrates the continued importance of the US investor base for Asian borrowers.

Bank of America Merrill Lynch, Citi, KDB and Morgan Stanley were joint bookrunners.

The company is South Korea’s second-biggest automaker and is part of the Hyundai Motor group. After posting losses in 2007 and 2008, the company has staged a turnaround and its credit has materially improved since then. Kia Motors is rated Baa2 by Moody’s and BBB by Standard & Poor’s.

Kia Motors’ deal gathered an order book of $3.9 billion from more than 220 accounts. US accounts alone bought 60%, Asian investors 23% and European investors bought 17%. By investor type, funds bought 67%, insurers 13%, banks 10% and others took the remaining 10% of the deal.

The company had gone out with a price whisper in the area of low-200bp over Treasuries on Tuesday. At that time, there was price sensitivity among Asian investors and, according to one banker, “a lot of fast money” in the book.

The quality of the book improved once European and US orders started to come in and, as a result, the allocations ended up being skewed towards US investors. The initial guidance was released at Treasuries plus 215bp, plus or minus 5bp, and the leads subsequently went straight to the final pricing of Treasuries plus 208bp. In secondary trading, the bonds tightened to Treasuries plus 206bp/205bp yesterday morning.

Kia Motors has issued dollar bonds in the past, but not recently, so investors looked to the Hyundai Group’s outstanding bonds as more relevant comparables. Hyundai Motor 2016s were at Treasuries plus 195bp, Hyundai Steel 2016s were at Treasuries plus 224bp and Hyundai Capital 2016s were at Treasuries plus 214bp.

Kia Motors’ bonds mature on June 14, 2016. The coupon was fixed at 3.625% and the notes reoffered at 99.688 to yield 3.694%.

Away from Kia Motors, Essar Group company Aegis, which provides outsourcing and technology services, has hired Deutsche Bank, Standard Chartered and UBS for its debut dollar bond sale. Investor meetings in Asia, Europe and the US start on June 9 and finish on June 16.

Meanwhile, Malaysia is also planning to issue a $2 billion global sukuk by end June or early July. CIMB, Citi, HSBC and Maybank are the arrangers. The global sukuk will be offered in a combination of two tenor tranches, which are still being finalised. The sukuk will be structure based on the wakala structure.

Korea Hydro & Nuclear Power is expected to finish roadshows for its dollar bond at the end of this week. Barclays Capital, Goldman Sachs, Morgan Stanley, Royal Bank of Scotland and Samsung Securities are the arrangers.

¬ Haymarket Media Limited. All rights reserved.
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