Daejeon to make Samurai first

This deal is likely to precede a Y13 billion ($105.4 million) Samurai guaranteed by the Daejeon Metropolitan City, planned for late July/early August. The latter will embrace a special purpose vehicle (SPV), through which three local construction companies plan to raise funds for the two year Riverside Expressway project.

Daejeon, located 150km south of Seoul, is one of the country's main transportation hubs and will also be a host of the 2002 World Cup for which the expressway is being built. The city government is to guarantee the deal, which will have a 10-year tenor, matching the long-term nature of the project.

In this respect, the deal will stand apart from most Yen-denominated fundraisings from Korea, which tend to range from three to five years. The novelty value of the name should also add some welcome diversification from KDB, Kepco and Posco, which have dominated the market in recent years.

KDB, which is planning to return to the Samurai market for the first time since November 1999, is likely to launch its five-year transaction in mid-July. The Baa2/BBB-rated credit initially earmarked raising the equivalent of $1 billion to $2 billion from overseas markets this year, but is currently considering whether it needs to adjust the plan following recent government moves to establish a special programme for Korean companies struggling to maintain facilities investment in the face of a slowing economy.

The government has said that it intends to set up a $3 billion fund, through which KDB will raise funds and on-lend to local companies. KDB officials say that so far this year, the bank has raised $200 million equivalent from a Yen-denominated loan in May.

This Y25 billion ($203 million), three-year facility paid 50bp over Yen Libor, with arrangers comprising BA Asia, Mizuho, RZB and Sumitomo. The bank has said that it wishes to price the new bond deal below 70bp over Yen Libor, thereby maximising the benefits of the low absolute coupons available in the Japanese market and any cost advantages over dollar spreads. Proceeds will not be swapped back to Won.

The most direct comparable is the bank's 7.25% May 2006 issue currently trading on a bid/offer spread of 180bp/170bp, or a Yen Libor equivalent of about 75bp over. It also has a Y50 billion three-year deal from November 1999, launched at 98bp over Yen Libor on a coupon of 1.65%

More recent benchmarks have also been set by Posco and Kepco, which respectively returned to the Yen markets in February and April. Kepco raised Y35 billion from a three-year deal with a coupon of 1.27% and a spread of 95bp over Yen Libor, while Pose raised Y30 billion from a five-year deal with a coupon of 1.84% and spread of 106bp over Yen Libor.