Doosan Power and ICBC (Sydney branch) kicked off the week's new issue pipeline on Monday with contrasting $300 million transactions.
The Korean credit followed the recent precedent of Korean Air Lines with a credit-enhanced, perpetual non-call three offering that was structured with a 30-year maturity that rolls over into perpetuity.
However, like its predecessor, the transaction is effectively a short-dated note since it features a three-year call option and mandatory put option. This means Doosan Power will either redeem the bonds after three years, or they will be purchased by the Export-Import Bank of Korea (Kexim), which provided the guarantee.
The Reg S deal carries Kexim's Aa3/AA- rating and was initially marketed at 145bp over Treasuries before the syndicate tightened it to a range of 135bp to 140bp over. At this point the order book totalled $750 million.
Final pricing was fixed at 99.745% on a coupon of 2.5% to yield 2.589% or 135bp over Treasuries.
Bankers cited two main comparables. The first is Korean Air Lines' $300 million perpetual non-call three issue, which was priced almost two weeks ago and bid on Monday at 133bp over on a G-spread basis.
The second is Kexim's recent $750 million long five-year bond, which was priced in early November at 99.969% on a coupon of 2.5% to yield 95bp over Treasuries. The deal was being quoted on Monday slightly below its issue price on a bid price of 99.51% and yield of 2.6%, equating to a G-spread of 86bp.
This means Doosan Power's Kexim enhanced bond has offered a roughly 40bp to 50bp yield pick up over Kexim's own paper, in line with the differential offered by Chinese banks through their Standby Letters of Credit.
One banker commented that the market opened soft on Monday so the deal did not garner the same strong $2.8 billion order book Doosan Power attracted in April, when it priced a $500 million Kexim-enhanced Reg S/144a straight five-year deal at 95bp over Treasuries.
The group is a wholly owned subsidiary of Seoul-listed Doosan Heavy Industries and provides power plant equipment, maintenance, repair and overhauling (MRO) services to thermal and nuclear power companies, plus oil and gas operators.
Joint global co-ordinators for Doosan Power's deal were Citi, HSBC and Standard Chartered.
ICBC comes to a land down under
China's largest bank by assets also returned to the international bond markets on Monday with a $300 million three-year deal for its Sydney branch.
It was a case of deja vu for many investors as the bank was only in the markets a few weeks ago with a $300 million three-year issue for its New York branch.
The new A1/A rated Reg S transaction was initially marketed at 115bp over Treasuries, before pricing was tightened to 95bp over. At this point the order book topped the $1.25 billion mark with a strong showing from Asia (about 90%) and bank treasuries.
Final pricing was fixed at 99.792% on a coupon of 2.125% to yield 2.197% or 95bp over Treasuries.
ICBC's most recent 2.157% November 2018 deal was bid Monday on a G-spread of 91bp over. When it was priced in early November, the deal came at par to yield 100bp over three-year Treasuries but the reference rate has since rolled over to two-year Treasuries.
"The new deal has offered a concession of about 3bp to 4bp over ICBC New York's secondary trading levels," said one banker. "But it has priced through where the former deal came at a few weeks ago."
The same banker also agreed that markets were soft on Monday, adding that, while bank treasuries are still busy putting money to work, fund managers are more subdued and may stay on the sidelines given the roll call of data expected this week.
This includes Chinese PMI figures on Tuesday, followed by the results of the European Central Bank's monthly meeting on Thursday, which may lead to more quantitative easing. Then finally on Friday, all eyes will be on non-farm payroll numbers in the US, which will give the strongest indication yet whether the Fed will start to raise rates later this month.
In a research note published on Monday, Citi said it is not a big fan of three-year paper by China's big four state-owned banks. "Although technicals could remain strong, these bonds are trading through their Korean peers making valuations look unattractive from a fundamentals point of view," it concluded.
However, other banks believe the new deal will trade well. In a sales note, BOCI commented that secondary market momentum is likely to be generated by Chinese institutions, which did not participate in the primary market where they are subject to withholding taxes.
Joint global co-ordinators for the ICBC (Sydney) deal were ANZ, Bank of America Merrill Lynch, ICBC Asia, ICBC International and ICBC Singapore.
