Korea First Bank (KFB) priced an increased $300 million hybrid tier 1 deal well through expectations during New York's afternoon on Wednesday. For the Newbridge-controlled bank, it must have been a particularly satisfying result after a fairly miserable 2003 when unlucky timing conspired against both of its previous two subordinated debt issues. This time round, benign market conditions allowed KFB's credit ratios to shine through and as fund managers started to re-focus on the bank's fundamentals, its credit curve was pulled in. The deal was also helped by the news that Citigroup is to purchase Koram bank from Newbridge's fellow private equity investor Carlyle group. The move has led to a 60bp to 70bp tightening of Koram's sub debt spreads over the past couple of weeks.
Under the lead of house banks Lehman Brothers and UBS, Baa2/BBB-/BBB+ (Fitch) rated KFB set out with expectations of raising $200 million and increased the deal size to $300 million on the back of a $2 billion plus order book. The deal, which had a BBB- rating from Fitch and implied Ba1/BB rating from Moody's and Standard & Poor's, was structured as an extendible 30-year with a 10-year call.
Initial price guidance of 332bp to 344bp over Treasuries was tightened to 325bp to 330bp and then priced at the very tight end of the revised range. With an issue price of par, the deal has 7.267% coupon and spread of 325bp over Treasuries or 286bp over Libor. Fees total 1.25%.
On a like-for-like basis, pricing came at a roughly 50bp premium to the bank's March 13c08 upper tier 2 deal, which was trading at about 226bp over Libor at the time of pricing. The curve was worth about 10bp.
This level of premium represented the absolute minimum pick-up an investor would expect between an upper tier 2 and hybrid tier 1 deal. Some would have expected more like 75bp to 100bp.
The other major comparable is a December 2012 hybrid tier 1 deal for Hana Bank, which was trading at 300bp over Treasuries or 275bp over Libor. This means KFB came at a premium of 16bp to Hana, whereas many had thought it would price around the 25bp level because of a one-notch ratings differential from Standard & Poor's.
Both banks have the same ratings from Moody's and Fitch, but S&P rates Hana BBB at the senior level, implying a Ba1 tier 1 rating, just one notch below investment grade.
Within the first day of the deal breaking syndicate, all the comps had traded in 20bp. According to Barclay's Capital trading statistics, Hana came in to 257bp over Libor and KFB's LT2 and UT2 bonds to respectively 196bp and 203bp over. And despite the aggressive pricing and initial tightening, the bank believes all four still have relative value.
"Our view is for at least a further 30bp compression on the KFB tier 2 bond and on the Hana perps medium term," it wrote in a research report. "We, thereby, consider fair value for the KFB UT2 and LT2 at approximately 75bp to 85bp inside the KFB tier 1 bond (for Libor spreads of 183bp and 173bp respectively) and for the Hana perps at approximately 25bp inside the KFB tier 1 perps for a Libor spread of 233bp."
KFB's tier 1 deal had a vastly expanded investor base over its previous two market forays in 2003. Observers report a total of 151 accounts, with a geographical split that saw 56% placed into Asia, 23% into the US and 21% into Europe. By investor type, the book splt 55% asset managers, 17% retail, 15% banks and 13% insurance companies.
By contrast, the bank's $375 million UT2 deal in March 2003 attracted 65 investors and its $200 million LT2 deal in October just 33 investors after being build upon reverse inquiry demand.
