Kogas priced a debut $250 million seven-year 144a yesterday (Thursday) via joint leads Credit Suisse First Boston and Deutsche Bank. The A3/A- rated deal was notable for the fact that it priced right through the Korean credit curve and amassed an order book reminiscent of pre-financial crisis Asian Yankee bonds.
Pricing came at 99.635% on a coupon of 4.75% to yield 4.812%. This equated to 120bp over Treasuries or 73.5bp over Libor. Fees were 22.5bp.
At this pricing level, the deal came slightly through a revised indicative price range that started out at 77bp to 82bp over Libor and was then tightened down to 74bp to 78bp over Libor. The transaction also came through the levels of comparably rated Korean comps such as Kepco and Korea Hydro.
The three credits all share the same rating from Moody's and Standard & Poor's, although Kogas is on stable outlook from S&P, while both Kepco and Korea Hydro are both on positive outlook. Kepco owns 24.46% of Kogas, with the Korean government holding a further 26.86%.
Korea Hydro has a 4.25% January 2008 bond, which is two years shorter than Kogas. Yesterday it was trading 7bp wider at 80bp over Libor.
Kepco has two comparable bonds - a 4.25% September 2007 bond and a 7.75% April 2013 bond. The former was bid at 76bp over Libor and the latter at 89bp over Libor at the time Kogas priced, with bankers estimating an 82bp theoretical level for seven-year Kepco paper.
The reason Kogas was able to achieve such tight levels is because it had heavy appeal to US buyers, which saw value relative to single-A US gas comparables. Companies such as Boston Gas, North Shore Gas and Colonial Gas, for instance, are said to currently trade around 25bp over Libor in the seven-year sector.
As a result, Kogas' order book was dominated by US accounts taking 50% of paper, followed by Asia on 45% and Europe 5%. Korea itself accounted for about 20% of the total.
Books are said to have closed three times covered with demand of $750 million. By investor type, insurance companies accounted for 37%, funds 30%, banks 30% and retail 3%. The deal would have had very little appeal to private banking clients given the stock's high dividend yield (around 5.6%).
The deal also benefited from a relative scarcity of Korean paper over the past few months and novelty value. As one banker puts it, "The deal offers diversification away from the gencos and is a different type of quasi-sovereign play. In fact investors liked it because it has the credit characteristics of a quasi sovereign and quasi corporate."
The company main business is to import and wholesale LNG to city gas distributors and power generators. In its rating report, S&P cited the company's high leverage for its ratings category. At the end of 2002, for example, the company reported a debt to equity ratio of 230%.
