Joint leads Deutsche Bank and Citigroup priced a maiden $500 million offering for the Korea Highway Corp (KHC) yesterday (Thursday).
The 10-year deal represents one of the only pure benchmarks by a Korean corporate credit in the longer dated sector. However, investor fatigue towards Korean credits was once again clearly evident and while the deal priced within its indicative range, most observers believe the premium relative to the sovereign was a little high.
Having accumulated a $750 million order book, pricing came at 99.066% on a coupon of 4.9% to yield 5.02% or 158bp over Treasuries. Fees totalled 30 cents.
A total of 55 investors are said to have participated in the book, which had an allocation split of 45% Asia, 45% US and 15% Europe. Korea itself only accounted for about 20% of the Asian demand.
In a reflection of the deal's longer tenor, the order book was more heavily populated by traditional asset managers than banks. By investor type, observers say the book split 50% funds, 25% banks, 15% insurance funds and 10% retail.
Korea Highway Corp has the same A3/A- rating as the sovereign and priced about 56bp behind it. The Republic's 2013 deal, for example, is currently trading around 99.4% to yield 4.32% or 102bp over Treasuries. By contrast, the National Agricultural Co-operative Federation (NACF), which priced a $400 million five-year deal a week ago, has a one notch lower rating on the S&P side, but is trading at a 47bp premium to the sovereign's 2008 bond.
One additional factor pushing KHC to a slightly higher premium is its relatively weak credit ratios on a stand-alone basis. The company is said to maintain a high debt to EBITDA ratio of about 7.5 times and an EBITDA to interest coverage ratio of only 1.91 times.
The company is fully government-owned via the sovereign, KDB and Kexim and falls under the Ministry of Construction and Transportation. It has a heavy capex schedule over the next few years, having budgeted to expand the road system from 1,824 km to 3,400 by 2006.
KHC first tried to access the international bond markets in 1999, but was held back by the sovereign worried about FX flows. Despite the fact that the company's revenues are completely won-denominated, it has said that it hopes to be a relatively frequent visitor to the international capital markets. In particular, it hopes to set a series of longer-term benchmarks that meet its project requirements.
