Korea Gas raised $500 million on Monday night, giving Asian bond investors their first chance to buy new investment-grade paper since US Federal Reserve chairman Ben Bernanke spooked markets into fearing an end to government asset purchases.
Bernanke’s comments drove rates higher on longer-dated instruments and created enough volatility to make the market too risky for regular borrowers in Asia. Rates have calmed since then and are still at extremely attractive levels for issuers.
There is also plenty of demand from investors keen to deploy capital, as Kogas demonstrated. Total demand for the deal is said to have exceeded $6 billion.
The strong response was partly down to initial investor-friendly price guidance of 190bp over US treasuries for a five-year benchmark-sized deal ($500 million or more). Some investors might even have considered that a fair price given the 50bp to 60bp new-issue premium paid by the Republic of Indonesia on its most recent issue a couple of weeks ago.
However, Kogas did not have to pay that kind of price. The level of demand allowed the Korean LNG importer to tighten pricing considerably to 168bp, which represents a roughly 10bp new-issue premium over its existing 2017 bonds. The price tightened further in secondary trading, moving to around 155bp by yesterday morning.
“It’s been a long time,” said one debt banker. “There have been almost no deals going into the Asian investor base. The market would definitely like to see more of these types of deals to rebuild confidence in the market.”
Other issuers are likely to follow before the market pauses during August, said the banker. “Despite the rate move, we’re still at very attractive long-term yield levels for issuers.”
The bonds were distributed to 415 accounts, 44% in Asia ex-Japan, 20% in Europe and 36% in the US, where professional investors were able to buy the deal under the SEC’s Rule 144a.
By account type, 66% went to fund managers, 13% to banks, 9% to central banks and sovereign wealth funds, 8% to insurers and 4% to private banks.
Kogas is rated A1 by Moody’s, A+ by Standard & Poor’s and AA- by Fitch.
Kogas is a government-owned supplier of LNG to power-generation plants, gas-utility companies and city gas companies throughout the country.
The joint bookrunners were Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC.
