KDB broke new ground for Asian issuers yesterday (October 13) with an increased $550 million FRN via Goldman Sachs and Morgan Stanley. The five-year deal underlines the group's reputation as the region's most sophisticated borrower and was well-timed to take advantage of shifting investor appetite.
Where traditionally only about 20% of global issuance is in FRN format, bankers say the figure is more like 50% so far this year as investors look for more defensive instruments in a rising interest rate environment. As such, KDB's deal may mark a turning point for the Asian bond market. Indeed, observers say it represents only the second ever SEC-registered FRN from non-Japan Asia.
The deal was priced at 99.905% on a quarterly coupon of 40bp over Libor, to yield of 42bp over. Fees were 12.5bp.
At this level, lead bankers told investors the new deal priced 5bp through the bid level of the bank's outstanding 4.75% July 2009 bond. This was being quoted at 47bp over Libor at the time of pricing.
Other banks, however, were quoting the outstanding bond in the low to mid 40bp level, implying a tighter differential of 2bp to 3bp.
Either way, the deal generated a large order book that closed five times oversubscribed and prompted an increase from $500 million to $550 million. About 116 investors are said to have participated of which 35% came from Europe, 45% Asia and 20% US.
By investor type, banks took 50%, fund managers 45%, insurance companies 3% and private banks 2%.
The distribution statistics reflect the different dynamics of an FRN, with a much larger banking component than normal and deeper penetration into Europe where there are a lot more floating rate buyers.
"KDB is delighted," says one specialist. "It has not only broken new ground but diversified the bank's investor base."
The leads will be hoping that a broader investor base provides greater secondary market support for a deal with an aggressive headline yield. The issue was also deliberately priced below par to encourage secondary market buying by FRN investors.
