Korea Development Bank (KDB) officials have told FinanceAsia that the policy bank is interested in returning to the global bond markets in size next year, hoping to complete a $1 billion dollar-denominated offering in the first half. It would mark a return to large-sized dollar deals for KDB, which this year has limited itself to euro-denominated bonds and syndicated loans. Maturities remain in debate at the bank.
KDB is one of those few Asian credits that, if the markets are not too choppy, can get what it wants. It’s rated Baa2/BBB alongside the sovereign and, while if judged in a vacuum, its balance sheet resembles a well-used nuclear test site, it remains the government’s preferred capital markets window and strategic bailout vehicle.
Investment bankers gazing into their crystal balls see a more benign borrowing environment next year. This year’s jitters over uncertain US Federal Reserve interest rate policy will be over and it is hoped that corporate earnings projections will be less erratic. “KDB puts great emphasis on benchmarking. If the markets are all right, they’ll do a billion,” says one banker. But should the rosy scenario not materialize, the pragmatic policy bank will settle for $500 million at a reasonable price. Similarly, while KDB is said to be interested in setting a new 10-year benchmark – for several years the five-year has been its preferred maturity – bankers believe that the main consideration will be based on pricing.
Investors are ready. “There’s been strong interest in Korean deals,” says Kelvin Blacklock, a portfolio manager at Schroder Investment Management in Singapore. The Korean Deposit Insurance Corp successfully tapped the markets with a $1 billion exchangeable bond last month, for example, with a deal that had to be closed early after books passed the 10 times subscribed mark.
For Blacklock, the main risk is ongoing corporate restructuring. “I’m not sure there’s a lot of value at current spreads,” he comments.
The KDB 6.625% due 2003 was bid yesterday at 210bp over Treasuries, while the Republic of Korea 8.75% due ’03 was bid at 183bp over.
