Korea Development Bank priced its first Swiss franc bond in two years when it came to market early yesterday morning with a SFr200 million ($194 million) four-year security.
The notes pay a fixed-rate coupon of 1.75% and were issued at a price of 100.232 to yield 1.74%. This was equivalent to a spread of 100bp over mid-swaps.
KDB held investor meetings with Switzerland-based accounts on Monday through Wednesday this week together with its joint bookrunners, BNP Paribas and Credit Suisse. The discussion was dominated by questions over KDB’s potential move towards privatisation; however, in the end, this didn’t affect either the investor interest or the credit quality of the bonds.
KDB launched the deal immediately following the roadshow, announcing an initial yield guidance of 100bp over mid-swaps and indicating that it was looking to issue a deal of about SFr150 million. When it looked like there was investor appetite for something more, the deal was upsized to SFr200 million, according to sources -- still with a spread of 100bp over mid-swaps. However, as of last night, there was no information available on the final size of the order book or the distribution across regions and investor types.
That said, strong demand was fielded from local Swiss investors. As one banker put it, “this was the only opportunity in Switzerland to tap Korean sovereign risk”.
And given the stability of the Korean market (especially compared to the volatility in Europe) and the strength of the KDB credit, it was perhaps not too surprising that local investors were keen to buy. Strong participation by wealth management accounts is quite typical for bonds issued in the Swiss franc market. Many of these accounts are of the buy-and-hold type, which means the secondary market is fairly illiquid. And the new KDB 2014s were no exception, showing no movement in the spread over the course of yesterday.
Investors viewed the existing KDB 2013 bonds as the best benchmark for determining fair value for the new bonds. When the deal was announced, the existing 2013s were trading at 130bp over mid-swaps. Given that the new bonds have a one-year longer maturity, it was quite an achievement by the borrower to be able to price well inside the existing bonds at 100bp over mid-swaps, argued one source.
The well executed trade reflects KDB’s experience in the market and the fact that it has built a strong reputation for itself as an opportunistic borrower. And this occasion proved to be no different as the Korean policy bank chose to access the Swiss market in order to take advantage of the favourable funding available, as well as the investor diversification and liquidity.
“There’s plenty of liquidity in other markets but there’s been an increase in Swiss franc issuance and a lot of demand for the Swiss franc, given its status as a safe haven currency,” explained one source close to the deal.
The notes were rated A1 by Moody’s, A by Standard and Poor’s and A+ by Fitch.
