Woori prices Korea's largest ever bank capital offering

Preparing itself for the Basel 2 accords implementation, Woori prices a benchmark lower-tier 2 deal well inside of indicative guidance.
On Thursday night (April 27) joint bookrunners Deutsche Bank, Goldman Sachs, Morgan Stanley and Woori Investment & Securities priced a benchmark $1 billion 10-year non-call five-year lower-tier 2 deal for KoreaÆs Woori Bank. It was KoreaÆs second largest corporate bond ever.

Initially marketed to investors at the 70bp to 75bp level over Libor, the leads were able to tighten the pricing as the book built up momentum. The notes were priced at 99.89% on a coupon of 6.125% to yield at 6.151%. This equates to a spread of 117bp over Treasuries or 67bp over Libor, the tightest-ever lower tier 2 print from Korea. Fees were 25bp.

The deal marked a number of milestones for the Asian debt capital markets. It was largest Korean bank capital offering ever, the largest single-tranche North Asian bank capital offering ever, and the largest Asia-ex Japan sub-debt offering since 2003. However and maybe more importantly it is the first liquid Korean benchmark outside of the sovereign / quasi sovereign space.

Specialist say that the borrower was able to achieve such tight pricing levels because investors are looking for yield pick-up over the Korean policy banks - KDB, Kexim and IBK, which have now tightened to historically low levels. Additionally, Woori benefited from an upsurge in investor sentiment following TuesdayÆs ratings outlook upgrades in South Korea.

Indeed, sentiment toward emerging market debt has been on the rise for the past few trading sessions. The average yield spreads on EM debt have tightened almost four basis points respective to US treasuries. JPMorganÆs Emerging Markets Bond Index is currently sitting at 178bp.

Oversubscribed to the tune of $3.5 billion, the order book closed with 163 investors taking part. Geographically the deal was split 43% in the US, 34% in Asia and 23% in Europe.

In terms of investor type, fund managers picked up 47%, banks 30%, insurers and pension funds 17% and 6% went to others.

With the full implementation of the Basel accords expected to be finalised in 2007 in Korea, Woori will be using the proceeds of the deal to strengthen its capital adequacy standards. At the end of 2005, WooriÆs CAR improved from 7.81% in 2004, to 8.095. While itÆs total CAR saw a marginal decline from 12.2% in 2004 to 11.65% after $850 million in sub-debt was redeemed early in March 2005.

Woori reported a net income of W1.4 trillion in 2005, giving it a return on equity of 16.5% and a return on assets of 1.02%.

At the end of last year, WooriÆs non-performing loan ratio stood at 1.23%, against 2.27% for 2004. This is well in line with the industry average of 1.3%.

MoodyÆs notes in their most recent ratings report on Woori: ôSince its establishment in January 1999, Woori has significantly enhanced its financial fundamentals. Specifically, profitability has turned around and problem loans are now at manageable levels. Furthermore, internal capital generation, coupled with substantial capital injections from the government, has propelled Woori back to a moderate level of economic solvency.ö

Woori bank has an estimated $2 billion in international funding needs this year and has just over $300-million equivalent maturing later on in the year.
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