Kexim, a state-run policy lender, took advantage of the liquid markets to punch clean through its dollar yield curve, pricing at an equivalent of 27bp over mid-swaps. Such a keen price is all the more remarkable given its disappointing last outing, which ended up getting downsized from $1 billion to $800 million and closing late and at a wider price than expected.
Other borrowers would do well to pay attention to the secret behind KeximÆs rejuvenation: taking investorsÆ complaints on board and adopting a bold new strategy to accommodate them.
In a complete break with Korean market practice, Kexim went to investors with an expected price range for the issue and promised to stick to it, instead of the usual back-and-forth that results in a final guidance far-removed from the initial one. It may not seem like much, but in the hidebound world of Korean business it takes courage to buck the market.
To be sure, investors had become so irritated by the Korean habit of ambiguous price guidance that KeximÆs last deal saw pricing pushed out on the fixed-rate tranche to 33bp.
To avoid another costly embarrassment, KeximÆs team û comprising Citigroup, Deutsche Bank, UBS, Merrill Lynch and, perhaps notably, the investor-turned-bookrunner, Depfa Bank û counselled Sung-uk Hong, the issuerÆs borrowing chief, to be straight with buyers. ôIt was a hell of a brave thing to do,ö says one source close to the transaction. ôIf it had turned out that this deal could have priced at 28bp he would have been in a very difficult position. I donÆt think anybody else would have done that.ö
In the end, HongÆs courage proved once again why Kexim deserves its reputation as one of Asia's most astute borrowers û the bank has brought KoreaÆs first proper euro benchmark deal, the largest euro bond from Asia since 2004 and the largest single-tranche deal in any currency since 2004. Moreover, the deal sets a standard for transparency that Hong says he hopes other issuers in Korea will follow.
"Kexim is right back in the groove with this one," says the source. "It's hard to get excited about sovereign or quasi-sovereign trades out of Korea, but I'm genuinely excited about this one. It's a great way for Kexim to come back to the market."
The deal is priced, in euro terms, at 30bp over mid-swaps. On a dollar basis, that's 27bp over mid-swaps or 5bp cheaper than the price implied by KeximÆs outstanding dollar bonds. It compares favourably with the Korean governmentÆs outstanding dollar bonds as well. At pricing, the Republic of KoreaÆs due-2015 bonds were at 21bp over Libor and the 2021s at 27bp, which implies a new 2017 bond from the government would pay roughly 23bp.
Without doubt, the deal also benefited from the issuerÆs ratings upgrade û since the last trade, MoodyÆs has upgraded Kexim two notches above the sovereign ceiling to Aa3 (from A3) û and from the issuerÆs decision to conduct a proper roadshow to market the deal.
With its new rating and daring strategy, the order book closed two-times over-subscribed, including more than Ç525 million of orders from 23 accounts that had never bought Kexim before.
In total, 63 accounts from 21 countries invested in the new offer. Asia accounted for 16% and Europe 84%. By investor type, funds bought 27%, banks 54% and central banks, pension funds and insurers 19%
Kexim was established in 1976. The bank is an official export credit agency and one of Korea's three policy banks. Most of its financing is obtained from international capital markets and borrowings from foreign banks. According to MoodyÆs, the government of Korea controls the bank through the Ministry of Finance and Economy (60.1%), Bank of Korea (35.2%) and Korea Development Bank (4.7%) as of November 30, 2006.
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