Woori scores with AT1 return

The Korean bank takes advantage of prevailing wind for bank capital instruments.

Woori Bank ventured back into the Additional Tier 1 capital (AT1) sector for the third time in its history on Monday, selling a $500 million deal which attracted a much stronger order book than its previous two forays.

Woori, Korea's second largest bank by assets, is still the only one from the country to have raised AT1 capital, having first opened the sector in June 2015.

This time round it found a much better market window, attracting a final order book of $1.5 billion.

By contrast, Woori was only able to secure $850 million demand for its last $500 million transaction in September 2016 and $1 billion for the one before that in June 2015.

Bankers said demand was driven by investors seeking to boost total returns at a time when spreads have become fairly range-bound. 

"They've also taken note of Woori's trading performance over the past year or so," said one banker. "Its AT1 bonds have traded very defensively: they haven't fallen as much as other bank capital instruments when markets sell off and it's been hard to get hold of bonds when the market is performing.

"It helped to underpin demand for the new deal," the banker added.

Other banks are also now lining up to take advantage of investor appetite for yield instruments, with Hong Kong's Bank of East Asia mandating Citi and HSBC for an AT1 deal, which begins roadshows on May 9.

Pricing terms

Woori's indicative pricing was pitched at 5.5% before being tightened to a final coupon of 5.25% and spread of 334.7bp over Treasuries. Pricing for the Reg S/144a perpetual non-call five-year deal was fixed at par.

A total of 155 investors participated in the Ba3/BB+ rated offering compared to 76 accounts for the 2016 deal and 73 accounts for 2015's offering.

By geography, Asia took 49%, with Europe on 18% and the US 33%. By investor type, funds took 89%, insurers and pension funds 3%, banks 6% and others 2%.

As usual, European investors were fairly absent given their preference for higher-yielding domestic comparables such as Barclays, which has a Ba3-rated March 2022 callable deal yielding around 6% on Monday.

At the time of pricing, Woori's two existing benchmarks were trading 61bp apart from each other in yield terms. 

This differential can be partly explained by a one-year maturity extension, but also because they have slightly different structures. 

The first time Woori came to market, it accommodated Korean investors' preference for dated maturities with a 5% 2045 bond that rolls in perpetuity unless it is called (the first call falls in June 2020). 

On Monday, this bond was trading around 4.43%.

On its second outing, Woori issued a 4.5% perpetual non-call five issue (with the first call in September 2021). This was trading Monday at 4.98% before widening over the course of the day to 5.05%.

The group's 2.675% July 2021 senior debt, by contrast, was trading at 99.137% to yield 2.844%.

This means the new Basel-III compliant deal was priced at an 240.6bp premium to Woori's senior debt and a 20bp premium to the bank's outstanding September 2021 AT1 deal. 

Syndicate bankers estimated fair value around the 5.15% level after accounting for the curve extension, equating to a 10bp new issue premium. 

In secondary market trading the bonds opened tighter on the break at 5.23% bid and 5.19% offer. 

Bankers said this initial trading performance was very encouraging after a run of Korean issues which have not performed well because of geopolitical tensions with North Korea.

Woori took a little bit of a gamble bringing the deal on the day of presidential elections in Korea, but given there is a high degree of certainty to the outcome, it appears to have got away with it. 

First quarter results beat expectations

Notwithstanding its recent capital raising efforts, the bank still has the lowest overall capital ratio of Korea's big four banks. This stood at 15% at the end of the first quarter, down from 15.3% at the end of 2016 financial year. 

However, its commong equity tier 1 ratio improved from 10.5% to 10.7% over the same period.

First quarter earnings beat consensus expectations of Won413 billion ($364 million) to come in at Won637 billion. This was because of lower than expected credit costs of 0.06% compared to 0.99% in the fourth quarter, as well as rising net interest margins.

Non-performing loans also declined 12% over the quarter to 0.85%. 

The global co-ordinators for Woori's new bond were BNP Paribas, Citi, HSBC, JP Morgan and Nomura. Passive bookrunners were MUFG, Soc Gen and Woori Capital Markets. 

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