Quasi-sovereign oil company Korea National Oil Corp (KNOC) printed a $1 billion five-year bond through its secondary curve early yesterday morning and then saw the bonds trade tighter, setting a firm tone for what looks like a busy week with debt issuance poised to pick up again.
The deal also added to the rush of investment-grade issuance seen in the first quarter of 2012. KNOC is rated A1 by Moody’s and A by S&P and it is 100%-owned by the Korean government. It is a frequent issuer in the debt markets. According to one banker, it usually targets one dollar benchmark a year and also issues in various local currencies. The company has been making offshore acquisitions as Korea seeks to increase its self-sufficiency levels for oil and gas.
KNOC’s latest bonds priced at Treasuries plus 210bp, at the tight end of the Treasuries plus 210bp to 220bp final guidance and 20bp inside the Treasuries plus 230bp initial guidance.
The KNOC October 2016s traded at Treasuries plus 205bp and the new bonds, which mature in April 2017, came 5bp back of that for a six-month extension. According to a debt banker, the extension is worth about 12bp based on the US Treasury curve, which meant that KNOC priced inside its secondary levels.
The bonds went on to tighten in secondary trading. They were initially bid at Treasuries plus 207bp and moved slightly wider to Treasuries plus 209bp yesterday morning in Asia -- still 1bp inside the issue spread.
The deal attracted a $4 billion order book, with well-balanced demand. US investors were allocated 32%, Asian investors 45%, and European accounts 23%. Fund managers bought 47%, insurance 22%, banks 16%, central banks and public institutions 11% and private banks 4%. The coupon was fixed at 3.125% and the notes were reoffered at 99.706 to yield 3.189% -- the lowest yield and also the tightest spread for a Korean issuer this year.
Bank of America Merrill Lynch, Barclays, BNP Paribas, Deutsche Bank, HSBC and KDB were joint bookrunners.
Away from KNOC, the debt pipeline is building. Hana Bank has mandated BNP Paribas, Citi, ING, Royal Bank of Scotland, UBS and Hana Daetoo Securities for fixed income investor meetings in Hong Kong, Singapore, London, New York, Boston and San Francisco in the week of April 2. A deal may follow subject to market conditions.
Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) plans to issue a dollar bond arranged by Barclays and HSBC this week. If it succeeds in pricing, it will be the first Vietnam issuer to print a dollar bond since Vinashin’s default. The bank is rated B1 by Moody’s and B+ by S&P.
Two Chinese issuers are also planning inaugural dollar bonds this week. The first is Zoomlion Heavy Industry Science and Technology, which has mandated BOC International, Credit Suisse and Goldman Sachs as joint bookrunners for fixed-income meetings. The bonds are expected to be rated BBB- by Fitch and BB+ by S&P. Zoomlion makes construction machinery.
China Resources Gas has mandated Citi and DBS as joint global coordinators and joint bookrunners for its inaugural dollar benchmark. HSBC and J.P. Morgan are joint bookrunners. Investor meetings conclude today. China Resources Gas distributes city gas and operates 48 city gas projects in China. The bonds are expected to be rated Baa1 by Moody’s and BBB+ by Fitch.
