Kosep and MCC take advantage of market bounce

Two investment-grade borrowers — Korea South-East Power (Kosep) and MCC Holding (Hong Kong) — took advantage of a bounce in the markets late last week to price bonds.

Kosep, which operates thermal power stations, priced a $300 million five-and-a-half-year bond last Friday evening. The company went out with initial price guidance in the area of Treasuries plus 240bp on Friday morning and a deal that was capped at $300 million. It ended up pricing at Treasuries plus 225bp, about 15bp inside of the initial guidance.

The leads were revisiting the market after a previous attempt to market the deal at a tighter spread failed to gain traction with investors. On July 11, the leads — Citi, Goldman Sachs and Morgan Stanley — had marketed the deal with an initial guidance of Treasuries plus 215bp.

According to rivals, this failed to get any interest from investors and subsequently the leads went back to investors, marketing the deal at a spread of Treasuries plus 230bp. Even with a wider spread, investors showed little interest in the deal due to the poor market conditions at the time.

One person familiar with the deal said that after the release of the initial guidance of Treasuries plus 215bp, bilateral discussions were held with investors in relation to pricing, but no revised guidance was released.

When the leads returned to the market last Friday, with guidance at the area of Treasuries plus 240bp, many felt that the pricing looked overly generous, and that it was unusual for a Korean borrower to move wider on pricing.

“The deal looks cheap. But this is the third time they have come out with guidance. They have to get it done,” said another rival banker last Friday. “There’s a market window and issuers are taking advantage of that, because who knows how long it will last? But they have to pay a new issue premium.”

In the end, Kosep priced 10bp wide of the first sounding nearly two weeks ago, but 15bp inside the initial guidance released last Friday. The bonds, which mature on January 29, 2017, pay a coupon of 3.625% and were reoffered at 99.247.

Kosep was established in April 2001 as an autonomous power company after having been separated from Korea Electric Power Corporation during the government’s structural reorganisation of the power industry. Its bonds are rated A1 / A / A+ by Moody’s/S&P/Fitch.

Also on Friday, MCC priced a $500 million bond at a spread of Treasuries plus 350bp, about 25bp inside the initial price guidance of Treasuries plus 375bp.

The bonds are guaranteed by its parent, engineering and construction conglomerate China Metallurgical Group Corp, which owns 64.2% and is itself wholly owned by the Chinese government through the State Assets Supervision and Administration Commission.

The deal gathered an order book of $4 billion and 232 accounts participated. Asian investors were allocated 71% and the remainder was allocated to Europe. Fund managers were allocated 42%, banks 36%, private banks 15%, insurance 4% and others 3%.

The bonds were rated Baa2/BBB-. Morgan Stanley was a global co-ordinator and bookrunner. Barclays Capital, HSBC and Goldman Sachs were also bookrunners.

The coupon was fixed at 4.875% and the notes were reoffered at 99.405 to yield 5.011%.