In the second deal to come from a Korean policy bank in less than a week, Industrial Bank of Korea (IBK) priced a rare floating rate note deal that was more than four times oversubscribed on Wednesday (September 14). The A3/A-/A rated deal, led by CSFB, HSBC and Morgan Stanley was a $500 million reg S transaction with a five-year maturity.
Initially marketed to investors on Monday at 34bp to 37bp over swaps, the leads tightened guidance to 33bp-35bp over as the deal picked up momentum throughout the week. The deal priced at the tight end of the indicative range on a coupon of 33bp over three-month Libor with a re-offer price at par. Fees were 17.5bp.
The deal represented IBK's first dollar-denominated floater and also its best ever pricing level relative to other Korean quasi-sovereigns KDB and Kexim. Historically, IBK trades 3bp-5bp wider.
Last week's $750 million fixed-rate five-year deal from KDB priced at 32bp over mid-swaps on Friday and had tightened slightly in secondary trading to 31bp over swaps by Wednesday afternoon. Kexim's 2010 deal was trading at 32bp over.
With the deal priced so aggressively, bankers were not expecting to see much price action on the secondary markets over the next few sessions. However, on its debut in the market the deal had come in around 3bp with a bid of 30bp-28bp at end of Asian trading on Thursday.
“It is a good deal for IBK, both in terms of structuring and timing,” says one investment banker not involved in the deal. “It is such a strong market right now, that secondary trading can come even tighter irrespective of the deal’s aggressive pricing.”
The deal offers an attractive pick-up for investors who have a lot of appetite for floating rate notes at the moment. “IBK’s deal really tapped into the bid tone from KDB” says one observer, “It is very easy to follow a successful fixed rate deal with another fixed deal, but they saw a good opportunity in the FRN market and obviously made the most of it.”
Bankers say that following a recent sell-off in Treasuries, most investors have been swapping out of fixed rate deals for floaters and that IBK's deal has come at the right time to tap a large asset swap investor bid. This is said to be especially the case in Europe, where there is a large appetite for floating rate notes.
Bankers add that IBK also has the right risk weighting - 20% thanks to its OECD nation status.
European bids accounted for 46% of the 121 accounts that made up the $2.3 billion book - the largest ever order book for an Asian FRN. Asia made up 52% of demand, while the remaining 2% was allocated to other destinations. In terms of investor type, banks and public institutions made up the lions share with 83%, while fund managers took 6% and others the last 11%.
