Korea Development Bank (KDB) early this morning priced its $1 billion five-and-a-half-year bond at Treasuries plus 280bp. The leads — Bank of America Merrill Lynch, Credit Suisse, Daiwa, Goldman Sachs, KDB Asia and Mizuho — went out with guidance in the area of Treasuries plus 300bp on Thursday morning and revised that to Treasuries plus 280bp to 290bp, with the bonds eventually pricing at the tight end.
The total order book was more than $6 billion from 350 investors and 48% of the bonds were allocated to Asia, 37% to the US and 15% to Europe. By investor type, fund managers were allocated 39%, banks 23%, corporates and “others” 20%, private banks 10%, insurance and pension funds 8%. According to one person familiar with the deal, there were a number of high-quality accounts that had so far stayed at the sidelines but finally decided to put their money to work and took part in KDB’s deal.
The comparables were the KDB $750 million September 2016s and the KDB $900 million March 2016s which were trading at five-year Treasuries plus 265bp and five-year Treasuries plus 260bp respectively in the morning before the deal was announced.
As there were already two sets of bonds maturing in 2016, the leads opted for a slightly longer bond maturing in 2017 — to offer investors a yield pick-up. “We thought it would be better to give investors something with a slightly longer maturity and a yield pick-up and that’s why we opted for a 5.5-year deal,” said a person familiar with the deal.
The yield curve between a five-year US Treasury and a five-and-a-half-year US Treasury was worth about 15bp and this was added to the KDB September 2016s to account for the six-month extension on the new bonds, maturing on April 4, 2017, which brought them roughly flat to KDB’s secondary bonds.
“It’s a sign of how markets have improved. Korea National Oil came to the market a week ago and had to pay a generous new-issue premium and now KDB, which is a similarly rated name, is coming with hardly any new issue premium,” the person added.
Despite the tight pricing, the new KDB 2017s rallied in the secondary markets and were quoted at Treasuries plus 267bp/265bp this afternoon, about 13bp inside the issue spread.
The senior notes will be drawn down from KDB’s $4 billion SEC-registered programme. KDB is rated A1 by Moody’s. According to Moody’s, the rating is underpinned by government support for KDB under the KDB Act, which requires the government to replenish the bank’s deficits if its reserves are insufficient to cover losses. This clause will remain intact as long as government ownership of the KDB Financial Group, the holding company of KDB, stays above 50%.
KDB was established in 1954 and had W122.8 trillion in assets ($114 billion) as of June 30, 2010.
