Hyundai Steel, Korea’s second-largest steel producer, priced a debut $500 million five-year bond at Treasuries plus 249bp early Friday morning.
The company started marketing the deal with an initial guidance in the area of Treasuries plus 270bp and tightened this significantly to Treasuries plus 249bp to 251bp, eventually pricing at the tight end of the range.
Bank of America Merrill Lynch, Citi, Credit Suisse, HSBC and J.P. Morgan were joint bookrunners.
Hyundai Steel is one of the few triple-B-rated Korean companies to issue dollar bonds and offered investors a chance to diversify their portfolios. Hyundai Steel’s issue is rated Baa3 by Moody’s and BBB- by S&P, with stable outlooks from both rating agencies.
“Most of the Korean paper in the market is single-A, so investors were interested in the yield pick-up,” said one person familiar with the deal.” It also offered a decent pick-up compared to global steel companies.”
The bonds rallied hard and were quoted at Treasuries plus 238bp/235bp late Friday morning.
The deal gathered an order book of $2.8 billion, pulling a strong bid from US accounts, which bought 52% of the deal. Asian accounts bought 28%, with a strong onshore Korean bid, while European accounts bought 20%.
When the leads went out with the initial guidance of Treasuries plus 270bp, the book was much higher than $2.8 billion, but a significant number of accounts dropped out after they tightened guidance.
Similar credits — such as Hyundai Motors and Hyundai Capital, as well as global steel companies like ArcelorMittal, Brazil’s CSN and America’s Gerdau — all have outstanding bonds that trade around low-200bp over Treasuries. Posco, another comparable borrower, is trading well inside at Treasuries plus 200bp.
The coupon was fixed at 4.625% and the notes were reoffered at 99.788 to yield 4.673%. The bonds mature on April 21, 2016.
Hyundai Steel is 21.3%-owned by Kia Motors, which is 34%-held by Hyundai Motors, and 12.5%-owned by MK Chung, the chairman of Hyundai Motors Group. Thanks to its ownership, Hyundai Steel benefits from captive demand from Hyundai Motors.
The bonds have a change-of-control clause with a put option at 101% of the principal amount plus accrued interest. One of the triggers is if Hyundai Motor Company, Kia Motors and Chung cease to own at least 30% of the voting stock. Their ownership currently stands at 33.8%.
