Kexim and KDB confound market with FRNs

Tongues were wagging yesterday when HSBC announced the completion of two privately placed floating-rate notes for Korea Development Bank and Kexim under the issuersÆ EMTN programmes. The Koreans achieved remarkably tight pricing, reportedly causing borrowers across the region to quiz rival debt bankers about how the levels could be achieved in such bearish markets.

KDB placed its three-year $150 million FRN with a coupon of 70bp over Libor, pricing at par, while Kexim placed a five-year $100 million FRN with a coupon of 95bp over Libor. The issue price was not stated for Kexim, leading some observers to speculate that the deal was sold at a discount.

The pricing levels achieved by KDB and Kexim have been termed ôoff marketö because of how they compare to where the issuersÆ credit default swaps (CDS) are trading. Both have three- and five-year CDS trading at 100bp-110bp and 112bp-120bp. All other recent new issues have priced at a significant premium to CDS. KDB priced its January deal at 45bp back from CDS, while Kexim's last public deal in November came at 17bp back.

HSBC has not released geographic or investor-type distribution for these deals, although a source at Kexim says that KeximÆs paper went to just one investor. The similarity of the two credits, and the fact that HSBC worked on both deals, has led some to suggest that the notes from both issuers were placed in the same hands.

With the rumour mill working overtime, sources were claiming that HSBC was the buyer, or that the notes were placed with its private banking arm. ôItÆs possible that a large upfront fee, combined in KeximÆs case with a discount on the issue price, allowed both borrowers to achieve attractive headline numbers and HSBC to buy the bonds at market value,ö says one source.

But HSBC has countered these claims by saying the paper was placed externally and it seems unlikely that the bank would take the paper on their books at these levels, in this kind of a market. When asked what kind of buyer would purchase at such tight levels, a source at the bank declined to comment.

Whatever the truth, HSBC has widened the gap between itself and other investment banks in AsiaÆs league tables. The bank is in the top spot this year, having worked on IndonesiaÆs $2 billion sovereign bond deal and KDBÆs $1 billion transaction in January. Some argue this alone is sufficient reason for it to have bought the paper even at very tight levels, a move which also would place the Hong Kong bank favourably for future mandates.