Korea National Housing Corporation (KNHC) and Korea East-West Power Corporation (Kewespo) have taken advantage of an improving market tone this week, with transactions that have been well received despite fairly aggressive pricing.
Government-owned KNHC made its debut in the euro-denominated sector at London's opening yesterday (November 10) with an Eu400 million deal via Citigroup, Deutsche Bank, HSBC and Morgan Stanley. The A3/A rated borrower has adopted an unusual tack towards its international borrowing programme. Rather than debut in dollars and then move on to either euros or yen, it opted to make its foreign currency debut in Yen and has now followed up in euros.
A decision to prioritise euros appears to have been an astute one. The group's five-year deal represents the first euro-denominated corporate FRN from Asia and only the third corporate floater out of Korea ever.
As such a combination of rarity value and pent-up demand from Europe's legions of FRN investors ensured a strong response that translated into better pricing than the dollar market would have offered on a pre-swap basis. Proceeds are being swapped into dollars and then Won.
Pricing of the deal came at 99.810% on a coupon 25bp over Euribor and 29bp over at the re-offer. Fees were 20bp.
At the time of pricing, KDB's February 2010 euro-denominated FRN was trading at 28bp over and Kepco's 2010 euro-denominated fixed rate deal at an equivalent euribor spread of 32bp over. Bankers believe KNHC has priced flat to KDB on a like-for-like basis, taking account the maturity differential between a February and November deal.
This level is far tighter than KNHC could have hoped to achieve in the dollar market, where sovereign-owned entities such as Korea Land and Korea Highway tend to trade 3bp to 4bp behind the policy banks. On a Libor basis, the deal has come at about 27bp over - a 2bp differential to the secondary market level of Kexim's five-year deal issued this Tuesday.
The order book for KNHC's deal was described as extremely strong, with $1.9 billion of demand from 98 accounts. One account, which can only invest in euros, is said to have asked for half the deal on the first day of marketing.
By geography, the order book had a split of 69% Europe, 29% Asia and 2% Korea. By investor type, banks took 47%, funds 43%, retail 5% and insurance companies 5%.
One of the reasons why the deal was so well received can probably be attributed to the momentum generated by the Republic of Korea's Eu500 million deal in late October. Having issued at the 10-year part of the curve, the sovereign would have created demand that was left unsatisfied at the short-end.
The night before KNHC, a $300 million offering was issued by Kewespo. The Korean genco's seven-year deal had initially been expected to price at New York's open on December 9, but was pushed back to later that afternoon thanks to volatility in US Treasury yields, which spiked 10bp because of a poor reception to a five-year Treasury auction.
However, the volatility is said to have had little impact on the order book, which closed at the $650 million level with participation by 51 accounts. Under the lead management of Barclays, Credit Suisse First Boston and Lehman Brothers, the transaction was priced at 98.729% on a coupon of 5.25% to yield 5.471%.
This equated to 95bp over Treasuries, or roughly 39bp over mid-swaps. Fees were 22bp.
The main comparable was the genco's outstanding April 2011 bond, which has a one-and-a-half year shorter maturity. This $200 million 4.875% deal was trading at 91bp over Treasuries, or 37bp over Libor. At launch, the deal was priced at 112bp over Treasuries and 69bp over Libor.
On a like-for-like basis, Kewespo has priced flat to its outstanding curve.
Specialists say its strategy of balancing distribution between the three regions was one of the key factors behind its success. In 2004, Kewespo broke the mould of Korean genco deals by bringing the first 144a transaction from the sector.
Its new deal has followed suit and ended up with 40% placed in Asia, 35% in the US and 30% in Europe. Since there has been no other genco paper so far this year, the deal also has rarity value.
In addition, pricing offers a healthy pick up to policy bank paper. Kewespo is currently rated A-/A2/A- (Fitch). The group's rating from Moody's stands one notch above the sovereign rating, while its S&P rating stands one notch below.
KNHC and Kewespo look like they will be followed into the market by KDB, which has mandated Barclays, Credit Suisse First Boston and Morgan Stanley for a $500 million FRN. Bankers speculate that the policy bank will be satisfied with nothing less than pricing at least 1bp through arch rival Kexim.
The latter issued a $500 million five-year FRN earlier this week, that priced at 24bp over mid-swaps and is currently bid at 25bp over.
