Presentations for a $200 million to $300 million transaction began in Tokyo on Wednesday, moving to Hong Kong Thursday and Singapore today (Friday). European presentations will kick off in Frankfurt on Monday, followed by London on Tuesday, with pricing scheduled for Wednesday.
Credit Suisse First Boston and Lehman Brothers are joint lead managers of the five year deal, which is expected to price at about 260bp to 270bp over Treasuries. Investors have been looking at LG Caltex as the most comparable benchmark and in particular its 7.875% July 2006 transaction, currently trading at a bid/offer spread of 240bp/225bp over Treasuries.
Despite the fact that SK Corp ranks as Korea's largest oil refiner with a 35% market share compared to LG Caltex's 26% share, it has a weaker balance sheet. This is reflected in the fact that whereas the latter is rated BBB-/Baa2, the former has a Baa3 rating from Moody's.
Having been an infrequent borrower in the dollar market, the company has never felt the need to get a Standard & Poor's rating and given the agency's perceived bias against the energy sector, it would have stood in danger of receiving one below the investment grade threshold.
Prior to the current deal, the group has only approached the capital markets twice in recent years. Both deals, however, were little more than syndicated bank loans. In 1994, for example, it completed a $100 million FRN via Bankers Trust and in 2000 a second $100 million via ABN AMRO.
Underscoring the incredibly tight pricing levels being offered by some European banks last year, this three year deal was priced at only 80bp over Libor.
Observers say that the new deal reflects a strategic aim to term out the company's balance sheet and maximise the potential of any appreciation in the Won. The currency's previous weakness and high crude oil costs have taken their toll on the company's balance, although this only ever marks a temporary phenomenon since it can pass on costs to the consumer.
Proceeds from the deal will be used to re-finance existing debt. This includes a Y15 billion five year deal that is approaching maturity and had been swapped into dollars.
In total, SK Corp had W6.4 trillion in debt outstanding at the end of 2000, of which W3.3 trillion constituted short-term debt and W3.1 trillion long-term debt. Debt to EBITDA stood at 4.4 times FY00 earnings and debt to equity 106%.
The company has said that it hopes to cut its overall debt levels and following the successful completion of its Eurobond, is looking to cut about W2 trillion off the total through the sale of its stake in SK Telecom.
