Massive demand for KHNP's $1 billion bond issue

Korea Hydro & Nuclear Power (KHNP), a unit of state-run Korea Electric Power Corporation (Kepco), priced a $1 billion five-year bond issue early this morning (Hong Kong time) at the tight end of late price guidance.

Despite the fact that Korean investors were excluded from the primary offering, the deal attracted around $8 billion worth of orders, led by a hefty bid from Asian accounts, according to people familiar with the deal. Irresistible momentum gathered, and the issue turned hot.

Roadshows for the power generating company (genco) kicked off in Hong Kong on June 4, before moving to Singapore, London and New York; but a planned visit to Boston was replaced by a conference call once it became clear how strong the demand for the issue was.

The level of demand suggests that Investors paid little attention to the fact that yields continue to rise in the US government bond market as market participants worry about the level of future US debt sales needed to fund recent federal government fiscal packages.

Responsible for the successful marketing exercise were joint-lead managers Barclays Capital, Citi, Deutsche Bank, Goldman Sachs and Korea Development Bank (KDB). The first four are joint-bookrunners. The final allocation placed bonds with 306 accounts, with 42% of the notes distributed in Asia, 32% in the United States and 26% in Europe.

Initial price talk at the end of last week indicated a spread of 400bp over the five-year US Treasury yield for a $500 million issue. But that quickly tightened to a range of 362.5bp-375bp yesterday, as lead mangers apparently tried to get approval to raise the deal size.