Korean Development Bank (KDB) sold a $1.5 billion dual-tranche bond on Monday, replicating the structure of Export-Import Bank of Korea’s (Kexim) note issued last week.
The deal received an order book of more than $9 billion from more than 400 accounts, highlighting the appeal of Korean paper, not only from Asian investors but globally, say sources close to the transaction.
US investors accounted for 40% of KDB’s floating rate note (FRN) tranche, closely echoing Kexim’s track record in attracting non-Asian investors for its deals. The deal was split equally between a three-year FRN and 10-year SEC-registered fixed-rate paper.
“KDB adopted or copied the Kexim transaction from last week, which set an excellent benchmark for the deal,” said the source. “We originally wanted to do a slightly smaller deal but, given the quality of the book and strong demand, we were able to increase the size and execute a very successful transaction.”
KDB’s deal was priced amid weaker market sentiment caused by the sudden rush of bond supply in the first couple of days of the new year. For example, Asia-Pacific saw a total of $15.5 billion worth of debt issuance last week, and close to another $3 billion on Monday, highlight syndicate bankers.
Given current market conditions, investors would normally demand higher premiums of 10bp-20bp for new issuance but this wasn’t the case for KDB’s latest transaction, which ended up pricing deep within its existing curve for the 10-year tranche and inside Kexim’s three-year FRN priced last week.
“Because of the global nature of Korea in terms of its footprint in the dollar market, it can get very aggressively priced transactions,” said the source. “The bid is selective but this shows you that, for certain transactions, a tighter pricing [or negative premium] is still achievable.”
However, he adds that there will be heightened levels of new issue premiums that need to be paid for certain jurisdictions like China, which contributed to 60% of 2013’s total bond supply in Asia.
At the time of pricing, Kexim’s three-year floater was hovering around Libor plus 65bp, while its 10-year was around Treasuries plus 105bp. KDB’s existing 10-year notes – the 2019s – were trading at a G-spread of 115bp, note sources.
KDB’s note went out with a 15bp concession over Kexim’s for both tranches but managed to price at the tighter end of final guidance at Libor plus 62.5bp for the three-year FRN and Treasuries plus 102.5bp for the 10-year tranche, according to a term sheet.
Also, the Korean policy bank’s deal faired pretty well in secondaries in spite of weaker market sentiment, with the three-year FRN tightening by 1.5bp to 61bp over Libor, while the 10-year tranche widened slightly to 104bp above Treasuries along with overall bond market performance – Asia investment grade cash spreads widened by 1bp, whereas high-yield spreads widened by 5bp last week.
Barclays, BNP Paribas, Bank of America Merrill Lynch, Citi, HSBC, KDB Asia, Morgan Stanley and Standard Chartered are the joint bookrunners and lead managers of KDB’s transaction. Other lead managers include ANZ Securities.
