The Export-Import Bank of Korea (Kexim) maximised a potentially temporary interlude in the Greek debt tragedy on Tuesday to raise $1 billion in fresh funds from a new five-and-a-half year issue and a tap of its existing 2026 bonds.
The Aa3/A+/AA- rated quasi-sovereign credit prides itself on finding the best execution windows for its transactions and yesterday marked the first day in over a week when issuance became possible after Greece submitted a new reform plan on Monday.
As equity markets rebounded, the iTraxx Asia ex-Japan index tightened 4bp on Monday and a further 1bp on Tuesday. However, sales desks noted that most of the activity was driven by banks' prop desks rather than by real money accounts.
Nevertheless, Kexim was able to build up a reasonable $2 billion order book for its two-tranche deal, with the majority of orders flowing to the new 2020 bond, which garnered $1.1 billion in demand. The remaining $900 million went to the tap.
"Investors always prefer new issues to taps," one banker commented. "But Kexim had already raised $1.25 billion from a 10-year deal back in January and it didn't want to overcrowd that part of the maturity curve with a new deal."
"Kexim's August 2026 bond was only $500 million in size, so it seemed to make much more sense to re-open it," he added.
The new December 2020 bond was sized at $600 million and priced at 99.863% on a coupon of 2.625% to yield 2.652% or 97.5bp over Treasuries. The deal had initially been marketed at 105bp over Treasuries before being tightened to a range of 2.5bp either side of 100bp.
The tap was sized at $400 million and priced at 99.195% on a coupon of 3.25% to yield 3.337% or 95bp over Treasuries. This was first marketed at 110bp over Treasuries before being ratcheted down to a range of 95bp to 100bp over Treasuries.
At a first glance, the new five-year seems to offer a big pick-up to Kexim's existing five-year paper, which was bid Tuesday at 70bp over Treasuries, or 81bp over on a G-spread basis. However, the existing deal has a January 2020 maturity and the new deal has a December 2020 maturity so they are effectively one year apart.
"The Treasury curve between five and six years is very steep," one banker said. "Five-year Treasuries are currently trading at 1.66% and six-year Treasuries at 1.94%."
The banker estimated the Kexim curve is worth about 13bp to 14bp between five and six years, which means that the new deal has priced about 2bp to 3bp back from fair value.
Pre-announcement, the August 2026 bond was trading around 92bp over Treasuries, which means the new tap has offered up a 3bp new issue premium as well.
In terms of allocations, the most notable highlights were the large slug of the five-and-a-half year tranche, which went to the US (53%) and the high proportion of the 10-year tranche, which went to insurance and pension funds (62%).
By geography, the remaining 34% of the five-and-a-half year tranche went to Asia and 13% to Europe. For the tap, 73% went to Asia, with 18% to Europe and 9% to the US. Some 81 accounts participated in the five-and-a-half year and 66 in the 10-year.
By investor type, the 2020 bond was split 57% fund managers, 17% banks, 10% insurance and pension funds, 10% public sector and 6% private banks. The 2026 tranche saw fund managers follow pension and insurance funds on 15% with banks on 13%, public sector 9% and private banks 1%.
Investors will be hoping markets remain calm on Wednesday. In a commentary published on Tuesday, Chris Platt from Global Prime Partners remained sceptical that the unfolding Greek drama will have a happy outcome.
He said that rising Bund yields and tightening Spanish Treasury yields showed that investors believed the problem was likely to be kicked further down the road. Of the Greek restructuring plan, he said "it sounds like what we heard five years ago, none of which has been delivered."
Ratings upgrade in the offing?
Kexim, on the other hand, believes it has a number of credit positives, which should continue to underpin its safe haven status in the Asian credit universe.
In its marketing presentation to investors, it points out that it is Korea's only policy bank that does not have an ownership change hanging over its head.
The Korean government currently owns 54.7% of the Industrial Bank of Korea (IBK) but has said it wants to bring it down to just over 50%. It also recently made changes at the Korea Development Bank, which absorbed the Korea Finance Corp earlier this year.
KDB and Kexim have long been rivals and Kexim likes to price through KDB, whose own 2.5% March 2020 bond was bid at 72bp over Treasuries on Tuesday. It also likes to flag the fact that it sits under the Ministry of Strategy and Finance, whereas KDB comes under the Financial Services Commission.
Kexim further believes it will have the full complement of double-A ratings in the not too distant future.
Standard & Poor's rates it at the single A level, but put the rating on positive outlook in September 2014. Moody's also put its Aa3 rating under positive outlook this April.
In its marketing presentation, Kexim notes that its assets have been growing by a compound annual growth rate of 8% for the past six years. Capital injections from the Korean government have enabled it to maintain a BIS ratio of 10.3% as of March 2015.
But it also highlights that non-performing assets have risen from 1.51% to 2.06% as of 2015. It attributes this to the ongoing restructuring of the small and medium sized shipbuilding sector.
Joint bookrunners for the new deal are Credit Agricole, Credit Suisse, Goldman Sachs, HSBC, JP Morgan, Mizuho and Morgan Stanley. Daewoo was also joint lead.
