Woori Bank priced a downsized lower tier 2 transaction on Friday after struggling to draw investors thanks to difficult market conditions. The Baa2/BB+/BBB-rated deal ended up being downsized from $500 million to $400 million, priced at the wide end of a revised indicative range and at a premium to its outstanding lower tier 2 deal.
With Credit Suisse First Boston, JPMorgan and Merrill Lynch as lead managers, the 10 non-call five issue was priced at 99.723% on a coupon of 5.75% to yield 5.812%. This equated to 371bp over Treasuries or 230bp over Libor. Fees for the 144a deal were 45bp, 5bp less than Woori's last Reg S sub debt offering in June last year.
The deal had orginally been marketed as a $500 million offering with an indicative spread around the 220bp level over Libor. On Friday, this was revised to a $300 million to $400 million deal with a spread between 220bp to 230bp.
Putting a cap on the issue size was said to have given accounts greater comfort and books eventually closed around the $620 million level with participation from 81 accounts. By geography, the deal had a split which saw 51% placed into Asia, 46% into the US and 3% into Europe. By investor type, funds took 61%, banks 27%, insurance funds 9% and retail 3%.
The deal's travails were a direct reflection of market conditions and as one participant notes, "Last week saw the complete withdrawal of the buy side of the investor base. Everyone became fixated on the jobs numbers, which came out on Friday."
Those that remained clearly had a lot of pricing power, which explains why the deal priced at a 10bp premium to its own outstanding paper. Woori's existing July 13c8 was trading in the low 240bp level over Treasuries and at about 220bp over Libor. The Treasury curve between five and six years is currently very steep, but the Libor curve is fairly flat.
One of the few remaining supports in the market was the Korean investor base, with onshore asset swap demand driving about 50% of the Asian book.
Bankers believe the Fed's decision to drop the clause saying it will maintain an accommodating stance for a "considerable amount of time," means the bond markets could be entering a period of jittery stop/start conditions, with issuance windows opening and closing very quickly. Kexim, for example, just managed to get its $1 billion bond through earlier in the week. Any ambitions to narrow the premium at which it prices and trades to KDB were dashed, but at least the policy bank was not forced wider.
Two days, later, however and conditions had deteriorated further. Woori then had to deal with a situation whereby liquidity had drained away and its outstanding bond had widened nearly 40bp in Libor terms over the space of a week.