The Export-Import Bank of Korea (Kexim) successfully cleared a $1 billion twin tranche 144a issue late on Tuesday via joint bookrunners Barclays, Citigroup and UBS. The deal incorporated a five as well as a 10-year tranche and strong demand enabled pricing to remain within the indicative ranges despite a weak market tone throughout Monday and most of Tuesday.
Having marketed the five-year around the 115bp area, a $500 million deal was priced at 99.5% on a coupon of 4.25% to yield 4.237%. This equated to 113bp over Treasuries or 71bp over Libor. Fees were 17.5bp.
The 10-year was marketed at 120bp to 125bp over Treasuries. Pricing of a $500 million bond was completed at 99.279% on a coupon of 5.25% to yield 5.344%. This equated to 123bp over Treasuries or 81bp over Libor. Fees were 20bp.
The most relevant comparable for the five-year tranche was Kexim's own 4.25% November 2008 bond. At the time of pricing this was trading at 105bp over Treasuries or 70bp over Libor. Given that the Libor curve is flat, this means that there was virtually no new issue premium.
However, like most Korean high-grade credits, the deal's spread to Treasuries had widened about 7bp since trading levels last Thursday when Kexim started marketing the new deal. Fortunately for the borrower, spreads began to stablize 3bp to 5bp on Tuesday ahead of pricing and with an order book of $950 million for the five-year and $1.1 billion for the 10-year, the leads were able to hold guidance firm.
Relative to the KDB, the Kexim 2008 was trading at a relatively wide 13bp Libor premium to the former's November 2007 bond. Typically, Kexim trades at a 7bp to 10bp premium over KDB and until the announcement of its new five-year late on Monday, there was only 6bp between the two bonds.
But news of the new deal led KDB short-dated spreads to buck the market trend and trade in, with its November 2007 bond tightening from 67bp over Libor on Monday to 58bp over by Tuesday.
Where the 10-year bond is concerned, the most relevant benchmark is KDB's September 5.75% 2013 bond. At the time of pricing, this was quoted at 105bp over Treasuries or 70bp over Libor. Because 10-year buyers are less concerned about Libor, the main comparison was with the Treasury curve.
Here the curve is quite steep and with the addition of a 10bp to 12bp premium to compare the bonds on a like-for-like basis, Kexim has priced at 5bp to 8bp premium, very marginally inside where the market would expect it too.
Allocations for both the five and 10-year tranches were heavily tilted towards the US where the bank conducted its first roadshows since the Asian financial crisis. The five-year deal had a total of 85 accounts allocated with a geographical split that saw 61% placed in the US, 36% in Asia and 3% in Europe.
For the 10-year, 90 accounts were allocated with a split that saw 52% placed in the US, 36% into Asia and 12% into Europe.
By investor type, the five-year saw asset managers take 44%, insurance companies 33%, banks 19% and retail 4%. For the 10-year asset managers took 33%, insurance companies 37%, banks 26% and retail 4%.
Observers say Kexim's strategy of targeting US and the 10-year part of the curve appears to have amply paid off. Firstly, the flatness of the credit curve meant there was a lot of sense extending maturity. There is, for example, only 5bp between the Treasury spread of the KDB's 2007 and its 2013 bond.
Secondly, the group's absence from the US market for such a long time clearly resulted in significant pent-up demand, which helped to leverage pricing at a time when markets are weak. For Korean issuers in the immediate pipeline such as KDB, this may provide some encouragement.
Successful pricing judgement was re-affirmed by the deal's immediate secondary market trading pattern, with the five-year trading mildly up to 99.78% and the 10-year to 99.56% during Asia's morning Wednesday.
