Korea Hydro and Nuclear Power, a subsidiary of state-owned Korea Electric Power Corp, raised a capped $300 million five-year bond late on Tuesday night, pricing the instrument at its final price guidance.
The 144A/Reg S-registered offering defied global growth fears, which have prompted new bond issuers to pay up — as was the case with Hebei Iron & Steel’s debut $500 million three-year bond on Monday — as investors demand compensation for the recent increase in market turbulence.
In spite of this, Korea Hydro ended up pricing its latest bond at Treasuries plus 100bp, which is 20bp tighter than its initial price guidance and flat to its existing curve, according to sources close to the deal.
“Korea Hydro’s deal was a capped trade and that technical aspect allowed the issuer to press down pricing a little bit more,” said a source, adding that more debt transactions are likely towards the end of the week to early next week.
“The Asian market is still open, just as long as investors are adequately compensated.”
Financial markets panicked last week on speculation that slowing global growth may restrain the US economy’s recovery. This combined with political instability in Greece and the rapid spread of Ebola caused equity markets to suffer largely with the Hang Seng Index falling below 23,000 points for the first time since June.
Bond markets did not escape unscathed. The Asia credit index has widened 36bp in the past 18 trading sessions, according to Morgan Stanley in a report on Monday.
Paying up
Hebei Iron & Steel ended up paying a new issue premium of around 20bp for its debut deal, sources close to the deal commented, citing heightened market volatility. But they added that the recent decline in US Treasuries helped offset the higher premium.
Benchmark 10-year notes, which rose in price by as much as 3bp on October 15 on fears about the global economy, moved to a yield of 2.194% at the close of last week after touching a high of 2.229%.
On Tuesday, it hovered around 2.17%, and was down from levels of approximately 2.5% a month ago, according to Bloomberg data.
This was the same case for Indian government-owned financial institution IDBI Bank, which issued a $350 million 5.5-year note on Monday.
The Indian bank’s latest Reg S-registered bond priced at Treasuries plus 275bp. Although it tightened 25bp from its initial price guidance, the issuer paid a new issue premium of approximately 9bp when compared to its existing notes, which were trading at a G-spread of 255bp prior to announcement, said a source familiar with the matter.
Clearly, market sentiment has shifted from earlier this year. In March, IDBI was able to price a $300 million 5.5-year bond flat to its outstanding paper. It was also priced amid heightened market volatility as a result of upcoming Indian elections in April.
Korea Hydro comparables
The nearest comparables for Korea Hydro’s latest offering are its outstanding notes expiring in 2018, which were trading at a G-spread of 100bp prior to the announcement of the deal, according to sources familiar with the matter.
Order books were relatively strong. The deal received $1.5 billion in total orders from more than 150 accounts, added the sources. The investor breakdown was pretty equal between US, Asian and European investors.
Asset managers subscribed to 60% of Korea Hydro’s paper, followed by insurers 22%, financial institutions 12%, and private banks and others 6%.
The notes were issued under the firm’s existing $5 billion global medium-term note programme, which is rated Aa3. The company plans to use the proceeds for general corporate purposes.
Korea Hydro and Nuclear Power is Korea's sole nuclear power generation company. The company is wholly owned by Korea Electric Power Corporation, which in turn is 51% owned by the Korean government.
Bank of America Merrill Lynch, Deutsche Bank, HSBC, JP Morgan and the Royal Bank of Scotland were the joint bookrunners of Korea Hydro’s transaction.
