With Asia’s dollar bond markets delicately balanced, two companies — Lifestyle International and KT Corp — priced dollar bonds last night. Both deals were heavily driven by Asian investors, which were allocated 88% and 76% respectively. The rest went to European investors.
Department store operator Lifestyle International priced its $350 million five-year debut bond at Treasuries plus 460bp. The initial guidance was in the area of five-year Treasuries plus 475bp and this was revised to Treasuries plus 460bp to 470bp. Bank of America Merrill Lynch and J.P. Morgan were joint bookrunners.
The Hong Kong company shored up strong support from private banks familiar with its Sogo department store in Causeway Bay. Private banks took up 22%, fund managers 48% banks 16%, insurers 11% and others 3%. The bonds were rated Baa3 by Moody’s and BBB- by Fitch.
“It’s on the cusp of sub-investment grade and pricing needs to reflect that,” said one Hong Kong-based investor on Tuesday afternoon while the deal was in the market. “There is a chance that leverage could increase going down the road, and it is a slippery slope, so we could see it slide into BB- territory.
The deal gathered an order book of about $1 billion from more than 100 accounts. Wary of pushing investors too hard, the leads kept the deal at $350 million.
“It was a debut deal and we didn’t want to leave a sour taste for investors, so we sized it at $350 million,” said one person familiar with the deal. The closest comparable for the deal was Nan Fung International which traded at Treasuries plus 452bp on Tuesday.
Elsewhere, South Korea telecom company KT Corp also priced its $350 million five-year bond — the first dollar bond from a Korean company this year — amid overwhelming demand. The total book size was an astounding $4.7 billion from 280 accounts.
As the company did not want to issue a very large deal, the leads were faced with the problem of allocating the bonds and tightened guidance aggressively.
The bonds were marketed at an initial guidance of Treasuries plus 350bp for a $300 million size. Guidance was revised to Treasuries plus 325bp and subsequently to Treasuries plus 310bp to 315bp. The bonds priced at the tight end, a massive 40bp tightening from where the leads — Citi, Goldman Sachs and J.P. Morgan — started out.
The borrower achieved tight pricing and according to one person familiar with the deal, the bonds priced inside the recent Kexim 2017s on a maturity-adjusted spread over Treasuries basis. They also priced inside Lotte Shopping’s bonds. The majority of the bonds went to funds, which took 52%.
“The telco space is one that investors like and there is an undersupply of bonds,” said one rival banker. KT Corp is rated A by both Standard & Poor’s and Fitch. The notes reoffered at 99.892 to yield 3.899 to January 20, 2017.
Meanwhile, lender Industrial Bank of Korea chose to tap an alternative bond market with a A$325 million ($338 million) kangaroo bond — the first public benchmark kangaroo from a Korean bank since 2007. ANZ and Morgan Stanley were joint bookrunners.
“Korean issuers have continued to diversify their funding base. They’ve gone to the ringgit market and now they’ve gone to the Australian dollar market,” said one person familiar with the deal.
The floating-rate notes priced at 305bp over the bank bill swap, the equivalent of three-month Libor in Australia. The bond was mainly distributed in Australia and Asia, with some European participation.
