GS Caltex of Korea prices at tight end

Korean oil refiner GS Caltex last night priced its $500 million bond at 98bp over US Treasuries in a transaction that attracted $1.45 billion in demand. The BBB+/Baa1 offering closed with a yield of 5.672%, a coupon of 5.5%, at a price of 98.701, putting it at the tight end of guidance.

Bonds were allocated to 87 investors, with 46% sold to to funds / asset managers, 40% to banks, 8% to insurance and 6% to retail and other.

Bookrunners Deutsche Bank, Barclays, Goldman Sachs and Citi released an initial guidance of 100bp over Treasuries (or 44bp over Libor) for the benchmark 10-year Reg-S/144a bullet bond, building a book of $500 million two days ago and finally pricing nearly three times oversubscribed.

The roadshow encompassed London, Boston and New York. Sources close to the deal recounted a reasonably smooth transaction, with the deal taking shape on Friday and coming together last night in the US. However, Asia drove the trade, coming in early and giving a reasonable sense of valuation. The tickets covered a wide spectrum. The largest order came in at $250 million, while the smallest was a private banking order of just $0.25 million. Bonds were allocated to 87 investors.

For comps, the companyÆs outstanding 2016 10-year Reg-S bullet bond issue trades at 42bp over Libor, while the 2014 and 2015 issues trade at 37bp and 40bp over Libor respectively.

ôThe market is stable but not burning hot, so it was a good outcome. Investors have cash to work with and will be happy to spend it at the right valuation. It was also a nice, large, liquid deal - a first for Caltex.ö Korean corporate issues are also somewhat of a rare breed.

Investors also appeared unphased by GS Caltex's recent price-fixing trouble, which led to a combined $56 million fine for four Korean oil refiners. The penalty may have increased investor confidence in Korea's fair trade practices, although the fine is small compared to the estimated $255 million consumer loss as a result of the collusion.

Funds were raised for ôgeneral corporate purposesö.

GS Caltex is a 50:50 joint venture between Korea's GS Holdings and US oil company Chevron. According to MoodyÆs, the company has moderate financial leverage compared to other similarly rated oil refining and marketing companies, while its strong profitability measures benefit from its vertically integrated operations.