Posco dollar bond sets the standard

Posco re-opened the US dollar market for Asian corporate borrowers with élan on Thursday night, as it rode the crest of a wave of bullish sentiment for US Treasuries. The $700 million five-year issue marked the first US dollar offering from an Asian corporate since Hong Kong & China Gas's $1 billion issue in July 2008. 

Whispers earlier in the week indicated that Korea's biggest steelmaker would have to pay up to 9.5%, and yet, despite a rapid drop in US Treasury yields between then and launch, Posco was able to maintain its spread premium and achieve funding inside 9% -- at a launch yield of 8.95%. On Wednesday, the Federal Reserve said it would buy $300 billion in longer-dated US Treasuries, prompting a sharp rally in bond prices and hence a fall in yields.

The Regulation S/144A deal, reoffered at 99.208, pays a semi-annual coupon of 8.75% and matures on March 26, 2014. The pricing came on the back of a two-day roadshow to Los Angeles, New York, Boston, Singapore, Hong Kong and London.

The launch spread was 736.7bp over the five-year Treasury benchmark, but the yield spread immediately tightened by 50bp and at the close of business in Asia, the new Posco bonds were bid at 101.60. This might suggest that the deal could have been placed at a narrower spread. But a debt capital markets banker insists that, in this environment -- which is clearly a buyers' market -- all deals must give a generous premium to investors. Issues by two state-owned Korean policy banks, Export-Import Bank of Korea (Kexim) and Korea Development Bank, which were launched in January, had tightened by similar amounts last week.