An increased $500 million Reg S Eurobond was priced last night (Wednesday) by joint leads Credit Suisse First Boston, Goldman Sachs and Salomon Smith Barney. Priced at 99.955%, the three-year deal carries a semi-annual coupon of 3.5%, to yield 3.516% or 151.5bp over Treasuries.
On a Libor basis, the deal came at 65bp over, a 2bp to 4bp pick-up over the secondary market trading levels of the KDB's 5.25% November 2006 bond (subject to where the swap was completed). IBK is likely to be highly satisfied with result, particularly given that it was able to increase the deal beyond $350 million without having to sacrifice a basis point in pricing.
Despite the fact that Standard & Poor's assigns the bank a rating one notch below the sovereign ceiling, IBK has been able to price right on top of the proxy sovereign curve for the first time in its issuance history. Back in 1998, when it completed its last $350 million issue, the A3/BBB+ rated bank came 30bp over KDB and subsequently traded in to about 10bp over.
The success of the transaction also confounds the view that the diminishing onshore bid will impact offshore pricing. Because the won/dollar arbitrage has diminished, Korean demand was said to have been quite weak and accounted for only 2% of the total.
Observers report the participation of 76 investors and an overall order book of $825 million. In terms of geographical demand, Asia accounted for 75% and Europe 25%. This further broke down to Singapore 44%, Hong Kong 34%, Japan 15%, Korea 2% and rest of Asia 5%. From Europe, the UK accounted for 69%, Germany 12%, Benelux 6% and rest of Europe 13%.
In terms of investor type, funds accounted for 24%, banks 68%, insurance companies 3% and others (including private banks) 6%. Banks had been expected to be the mainstay of the deal since IBK is an infrequent issuer and many have open credit lines. The short maturity, 20% risk weighting and high credit rating would have all appealed and most are said to have placed the deal in their investment rather than trading portfolios.
Relative to the loan markets, where banks have been offering razor thin pricing in the hope of translating lending relationships into bond mandates, the deal appears expensive. KDB, for example, has just completed a three tranche loan with a three-year tranche at 33bp all-in via ABN AMRO, Barclays, Deutsche and Tokyo Mitsubishi. However, IBK was always very clear that it wanted to maintain a public benchmark following the maturity of its only outstanding eurobond this month.
Roadshows were completed back-to-front, starting in London and then moving to Singapore and finally Hong Kong, where the deal was priced. Bankers say this was done to make sure the deal priced in the time zone where the majority of demand lay, but did not hurt the book building process as many European accounts came in early.
