The flood of Korean paper swamping the US dollar bond market in Asia shows no sign of abating. In its second surge this year, after a successful issue in January, the Export-Import Bank of Korea (Kexim) raised $1.5 billion with a five-and-a-half year deal early yesterday morning (Hong Kong time).
This is the eleventh dollar bond sale by a Korean issuer so far this year; investment-grade Korean companies sold foreign currency bonds worth a total of $13 billion in the first half of 2009, up from $7.7 billion in the same period in 2008.
Kexim's issue was re-offered at 99.426 with a coupon of 5.875%, and just about achieved a sub-6% yield of 5.999% to a maturity date of January 14, 2015. It was priced at a spread of 362.5 basis points over the yield of the five-year US Treasury benchmark note, representing the tight end of the final price guidance of 362.5bp-375bp, and equivalent to 297bp over 3-month US dollar Libor.
The SEC registered issue is rated single-A by Standard & Poor's, A2 by Moody's and A+ by Fitch. Barclays Capital, Bank of America-Merrill Lynch, Credit Suisse, Deutsche Bank and Morgan Stanley were joint bookrunners. Samsung Securities also acted as a lead manager for the offering.
In January, Kexim, which is Korea's state-owned trade bank, sold $2 billion of five-year senior notes with a maturity date of January 21, 2014 at a yield of 8.218% which was 677.7bp over the five-year US Treasury yield and 625bp over mid-swaps.
Following the earlier bond sale, Jinkyung Kim, Kexim's chief financial officer told FinanceAsia in January that: "Our offshore funding requirement for the rest of the year is $2-$3 billion, [but] we are unlikely to come to the dollar market until the second half of the year." Well, he was true to his word, if only by a few days.
One market participant believes that the latest deal was "anchored down" after successful one-to-one meetings between Kexim and several key institutional investors. That might explain why the deal was so successful despite appearing quite expensive on a relative value basis, according to some analysts.
Having said that, liquidity is still strong -- especially among funds with a mandate to invest in Asian and emerging market credits. The total book size was just shy of $7 billion, and 368 accounts were finally allocated bonds. US investors drove the deal, taking 43% of the issue, while 36% was placed in Asia and 21% in Europe. By category, asset managers and hedge funds were the biggest buyers, taking 57%, while commercial banks bought 24%, insurance companies and pension funds 10% and retail and others took 9%.
But Brayan Lai, credit analyst at French investment bank Calyon, argued yesterday that a yield spread at the wide end of the indicative range of US Treasuries plus 363bp-375bp was "fair against its own cash curve". The $2 billion five-year Kexim deal sold in January was bid at 325bp over the Treasury yield -- so 20bp for the additional six months duration and a 30bp new issue premium would suggest fair value for the new deal at 375bp.
Lai further pointed out that, when compared with other liquid state-supported issues such as the Korea Development Bank 2014 bonds and the recent Industrial Bank of Korea deal with the same tenor, the new Kexim bonds "begin to look around 5-10bp expensive".
And more Korean issuance is expected in the next few days and weeks. In expectation of this, there have been signs that investors have been taking profits on recent deals, putting upward pressure on the relative spreads of liquid bank and corporate issues. Korean sovereign credit default swaps have also found support as investors have been buying protection.
State-run Korea Gas Corporation (KOGAS) is currently completing investor presentations for a benchmark-size five-year dollar bond deal, organised by Bank of America-Merrill Lynch, Deutsche Bank and J.P. Morgan. Early price whispers suggest a premium of 400bp over the US Treasury yield, with a structural sweetener of a change-of-control put.
The government-backed National Federation of Fisheries Cooperative is likely to follow shortly afterwards, while Korea Electric Power Corporation (Kepco) plans to sell at least $500 million of bonds -- perhaps by the middle of next week. (A unit of Kepco, Korea Hydro & Nuclear Power launched a $1 billion five-year issue in the first week in June).
State-owned Korea National Oil Corporation (KNOC) has also reportedly hired six banks to arrange a dollar offering later this month.
