The seven-bank coordinating arranger group comprising of ABN AMRO, Credit Lyonnais, DBS, Natexis Banques Populaires, Standard Chartered and Sumitomo Mitsui Banking Corporation (SMBC) launched a two-year $250 million Cho Hung Bank loan into sub-underwriting last week. ING Bank is the publicity agent for the transaction, which was launched to a select group of underwriters. Sub-underwriting will be closed toward the end of this week following which the deal will be launched into general syndication.
The deal pays a spread of 20bp over Libor and offers arrangers committing a minimum of $20 million, a flat underwriting fee of 2bp and flat management fees of 40bp. All-in fees for arrangers amounts to 41bp over Libor.
Cho Hung's most recent visit to the loan markets was in April this year when it raised HK$780 million through a one-year loan at a margin of 20bp over Hibor. Although Cho Hung does not have a need to fund in Hong Kong dollars, it tapped the market at that time purely to take advantage of the 10bp -15bp savings that would accrue from the underlying swap.
Prior to that it had tapped the loan markets last year through two transactions of $100 million each in July and December paying spreads of 45bp and 33bp over Libor respectively for one-year funding. Cho Hung last tapped two-year financing in the form of a $105 million floating rate note in August 2000 at a margin of 120bp. The present deal replaces the FRN, which matures in August 2002.
Pricing on the present deal is not only less than half of what Cho Hung paid for the FRN in 2000, but also cheaper than what Shinhan Bank is paying for its $300 million three-year fixed rate bond. Roadshows are scheduled to commence this week for the Shinhan deal with pricing slated for July 18. Pricing talk is in the range of 150bp over two-year US Treasuries, which equates to around 50bp over Libor in three-year terms. ABN AMRO, BNP Paribas and UBS Warburg are the lead managers to the bond issue.
The pricing on Cho Hung's present transaction, although low when compared to Shinhan's bond issue, appears attractive when compared with that for the $200 million one-year loan being tapped by similarly-rated Woori Bank. Woori's deal is slated for signing around July 23 and is said to be proceeding well. Shinhan, Cho Hung and Woori were all rated on the same level at Baa2 by Moody's until recently before the rating agency upgraded Shinhan to Baa1.
Although, both Woori and Cho Hung are tapping loans, their deals are not entirely comparable. Woori's deal is a relationship defining deal and hence it has not been launched into general syndication. Moreover, the tenor on Woori's loan is shorter than Cho Hung's.
Cho Hung's deal is also likely to be successful because the deal size being small and there are a large number of arrangers at the top level. The seven-bank group will not face the pressure to sell down the deal. Moreover, there could be still be demand for Korean bank credits coming to the market with different tenors, as they constitute only a 20% risk-weighting under BIS guidelines.
