Korean borrowers issued a further $350 million in paper yesterday (Wednesday), with Woori Bank completing a $200 million lower tier 2 deal and Kosepco a $150 million Reg S transaction.
Market participants commented that neither deal appeared to have set the market on fire and that both had been required to face up to an investor base suffering increasing fatigue towards Korean paper. However, the two deals were priced in line with expectations and in the process should have satisfied both borrowers' strategic objectives.
JPMorgan led Woori's 10 non-call five offering on fees of 50bp. The deal was priced at 99.512% on a coupon of 4.875% to yield 4.986% or 270bp over Treasuries
At this level it came flat to KorAm Bank's $165 million 4.68% June 2008 deal, which was priced exactly one week ago at 260bp over Treasuries. Since then the Citigroup-led deal has widened out 10bp in line with a number of Korean corporate names, which are said to have backed up about 8bp following the last Korean deal from the National Agricultural Co-operative Federation (NACF) on Friday.
On the surface, Woori's pricing might seem undemanding since the group has a Baa3 subordinated debt rating, one notch above KorAm's Ba1 rating. Typically there should be some clear water between an investment grade and non-investment grade deal.
However, in this case, KorAm has a stronger domestic rating of AAA compared to Woori's AA2. Both banks have the same rating from Fitch.
On a Libor basis, the deal is also said to have priced tight to the most direct comparable: Hanvit Bank's March 2005 transaction. This is currently said to be trading at 228bp over Libor, 8bp tighter than Woori's 236bp level.
Observers say that the three-and-a-half-year maturity differential should be worth about 30bp to 40bp. But investors are said to have been prepared to accept the tighter level because they would rather buy a new par bond, than an off-the-run bond, which has always traded very technically and very high. Currently it is bid at 114%.
The distribution breakdown shows that private banking demand drove a book, which closed around the $230 million level. Some 43 investors participated, with a geographical breakdown, which saw 40% placed in Hong Kong, 32% in Singapore, 16% in Europe and 12% in Korea.
By investor type, private banks accounted for 44%, banks 25%, asset managers 24% and insurance companies 7%.
Where Kosepco is concerned, Credit Suisse First Boston was lead manager on fees of 30bp. The A3 rated group's attempts to skirt an increasingly saturated market and appeal to a slightly different investor base took the form of a 10-year maturity.
This represents a first from the sector and should also provide a better match for the group's asset profile than the spate of five-year bonds, which have preceded it. Pricing came at 98.833% on a coupon of 4.75% to yield 4.889% or 160bp over Treasuries.
Because of the longer tenor, the deal had a much stronger appeal to insurance funds and this investor segment underpinned a book, which closed just shy of $200 million. Insurance companies took 35% of paper compared to 31% for banks, 29% asset managers and 5% private banks.
Like many of the previous genco deals, the book was small and concentrated, with a total of just 24 investors. But the longer maturity meant that about half the investors were new to the sector.
By geography, there was a split, which saw 42% placed in Singapore, 20% in Korea, 18% in Hong Kong 15% in Europe and 5% in the rest of Asia.
All three of the deals, which preceded Kosepco, have been five-years in maturity. The first to come to market was Korea Western Power and its $150 million 4.625% January 2008 deal was said to have been bid at 140bp over Treasuries at the time of pricing yesterday.
Likewise Korea Southern's $150 million 4.25% March 2008 bond was at the same level, while Korea Hydro and Nuclear Power's $200 million 4.25% January 2008 bond was bd about 5bp tighter at 135bp over.
On a like-for-like basis, Kosepco priced in line with its peers, given there is about 22bp on the Korean curve between five and 10-years. The sovereign's March 2008 bond, for example, is currently bid at about 81bp over Treasuries, while its recent June 2013 issue stands at 103bp over.
For Kosepco, one of the main credit concerns would have been the overhang of the government's privatization programme. It is the first of the gencos slated for sale and having failed to find a strategic partner willing to purchase a majority stake, the government is now said to be considering a domestic IPO in 2004 for 30% of the group's issued share capital.
In its ratings report, however, Moody's downplayed any negative impact from privatization, citing its, "expectation that the Korean government will manage reform of the power industry in a manner that supports the financial profile of the sector, whilst encouraging operating efficiency through slowly introduced competition."