Export-Import Bank of Korea (Kexim) has tapped the dollar bond market with a $1 billion three-year bond.
This is an unusual tenor for Asian borrowers, but one that enabled the policy bank to capture strong demand from US investors, just as the Asian bid was running out of gas. The quasi-sovereign typically taps the market with longer tenors but it saw an opportunity to price a deal at pre-crisis levels.
“We tapped the three-year tenor because we wanted to pierce through the psychological 100bp over Treasuries spread and saw good interest from US investors for three-year bonds from high-grade peer group issuers in the US, Canada and Australia,” said Sunghwan Choi, Kexim’s chief financial officer. “We ultimately priced at Treasuries plus 98bp — which is the tightest spread we have ever achieved since the 2008 global financial crisis.”
The policy bank had been monitoring the market in the first part of October, but conditions were challenging. It bit the bullet this week, getting ahead of the Thanksgiving and December holidays.
Initial price whispers were Treasuries plus 115bp and this was revised to Treasuries plus 98bp to 102bp, with the bonds pricing at the tight end. The deal paid a coupon of 1.25% and the notes were reoffered at 99.824 to yield 1.31%.
The order book was modest — $2.8 billion from about 160 orders. However, in contrast to other deals that have been massively subscribed, the bonds held up in secondary, where they traded at 101bp over two-year Treasuries, or about 94bp to 95bp over three-year Treasuries, inside the issue spread.
US investors were allocated 47%, European investors 28% and Asian investors 25%. Funds were allocated 63%, agencies and insurers 19%, banks 14% and private banks and other investors 4%. Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley and UBS were joint bookrunners.
The deal concludes Kexim’s funding requirements for the year. However, the policy bank is one of the most active borrowers in the market and it is expected to tap the dollar bond market two or three times next year.
“We plan to raise about $10 billion equivalent in total next year — about $3 billion to $4 billion from the public offering in the dollar bond market, with the rest from private placement and other currencies,” said Choi.
The cost of swaps have been rising as a result of banks having to set aside more capital for such arrangements. This affects borrowers such as Kexim, which has US dollar requirements and needs to swap any proceeds raised in other currencies back to US dollars.
“Swap costs have been rising as a result of Basel III,” said Choi. “We are concerned about this as we swap all non-dollar proceeds back to US dollars. We will be monitoring it, but we have the ability to tap different currencies opportunistically.”
