Chohung Bank priced a dual upper and lower tier 2 deal yesterday (Monday) through initial price guidance after attracting an order book topping $4 billion. Investor appetite for the deal represents a complete turnaround compared to June when NACF and IBK struggled into the market and became the last two Korean banks to tap the sub debt sector for four months.
The strong trading performance of both deals since then and the unusually long absence of the Korean banking sector from the market were two of the main driving forces behind Chohung's $400 million deal led by Citigroup and UBS.
A $200 million lower tier 2 issue with a 10 non-call five structure was priced at 99.779% on a coupon of 4.5% and yield of 4.55%. This equates to 133.5bp over Treasuries and 93bp over Libor. The issue was initially marketed at 95bp to 100bp over Libor
A $200 million upper tier 2 issue also with a 10 non-call five structure was priced at 99.669% on a coupon of 4.625% and yield of 4.7%. This equates to 148.5bp over Treasuries and 108bp over Libor. It was initially marketed at 110bp to 115bp over Libor.
A total of 97 investors participated in the BB+/Baa2 rated deal, which had a slight tilt in favour of the lower tier 2 issue. By geography, the lower tier 2 deal saw 62% placed in Asia, of which 20% went to Korea, 24% in Europe and 14% in the US. The upper tier 2 deal saw 67% placed into Asia, of which 14% went to Korea, 23% in Europe and 10% into the US.
Specialists report two orders north of $100 million in both books, as well as 12 orders for $50 million to $100 million in the lower tier 2 deal and 10 orders between the same range in the upper tier 2 book.
The main pricing comparable for the deal is a $250 million upper tier 2 deal by Shinhan Bank, which has the same BB+/Baa2 rating as Chohung. Shinhan is Chohung's ultimate parent, though the terms of the merger agreement state that they will remain separate legal entities until 2006.
Shinhan's 6.25% September 2013 call 2008 deal was said to have been trading yesterday at 126bp over Treasuries and 111bp over Libor. This means Chohung has priced an aggressive 5bp through its parent on a like-for-like basis.
Relative to Woori, pricing seems slightly more reasonable. The similarly rated bank has a 5.75% March 2014 call 2009 lower tier 2 deal outstanding.
This was being bid yesterday at 114bp over Treasuries and 82bp over Libor, some 11bp tighter than Chohung. However, Woori has traditionally traded at a much tighter level than Shinhan.
When it came to market in March, Woori faced an investor base experiencing considerable jitters about possible rate rises. It consequently priced generously at 371bp over Treasuries and 230bp over Libor - some 148bp wider than it is today on a Libor basis.
Chohung is using proceeds to replenish capital ratios that had dropped below Korea's regulatory minimum as of June 2004. FSC statistics show that the bank had the lowest CAR in the whole of Korea - 8.94% compared to a sector average of 11.73%.
It also has two extremely high coupon deals coming up to their call options next April. The 11.5% and 11.875% upper and lower tier 2 deals were among the first wave of sub debt deals from Korea after the financial crisis.
