Kexim launches 2.65% Formosa bond in Taiwan

Export-Import Bank of Korea (Kexim) continues to make its mark as an imaginative and opportunistic borrower. The Korean state-owned policy bank has an impressive recent history of taking advantage of localised demand for high-quality issuers or of open swap windows. Last week, it demonstrated that skill and agility once again.

On June 4, Kexim became the first Korean entity to tap the Taiwanese bond markets with an issue targeted at retail investors, launching a US dollar-denominated Formosa bond with a 2.65% fixed-rate semi-annual coupon. Formosa bonds refer to foreign currency-denominated bonds sold by a foreign institution in the Taiwan market.

The deal has a minimum size of $270 million, having been underwritten by the lead banks, and a greenshoe that will cap the deal at a maximum of $500 million. A greenshoe is an over-allotment option that gives underwriters the right to sell additional bonds if demand exceeds the original amount offered.

"This is still early days, but at the moment a $270 million deal is probably the biggest transaction in the Formosa market," said one banker.

The deal does not follow the typical process usually associated with G3 bond issuance in Asia. Taiwan's Formosa bond market allows borrowers to issue the foreign currency bonds to both domestic institutions and retail investors. As a result, Formosa bonds will typically have a longer subscription period in order to attract a strong retail investor base. In this case the primary subscription period is open from June 7 to June 22.

With a 3.5-year tenor, the maturity date has been set at December 23, 2013. The bonds will be listed on Taiwan's over-the-counter GreTai Securities market on June 23.

In a press release put out earlier this week, Jin-Kyun Lee, director of the international finance department at Kexim, stated: "Taiwan offers [Kexim] an attractive source of US dollar financing and a way to broaden our Asian investor base."

It is not expected that Kexim will look to swap the proceeds of the bond back into Korean won or Taiwan dollars. "The main reason for this deal is funding diversification," said a source. "There is a huge base of retail deposits in Taiwan that Kexim wants to get access to."