Shinhan Bank raised $500 million in the international bond markets this week, returning to investors less than four months after its last deal. The contrast in the market environment was stark.
When Shinhan sold its last bond — a $500 million tier two deal on November 30 — investors were still struggling to process the election of Donald Trump as president of the United States. The Asia ex-Japan iTraxx investment grade index had balooned to 125.7bp and, in Korea, the benchmark Kospi index was dwindling below 2,000.
But investors have now warmed to the idea of a Trump presidency, or simply decided to focus their attention on other things. The iTraxx index is comfortably below 100bp and the Kospi has broken a five-year high.
Shinhan, South Korea’s largest private lender, made the most of the improvement this week. It sold a deal that appeared to price well inside fair value — and that tightened in the secondary market anyway.
Shinhan had more than rising confidence in its favour. The bank has defied concerns over asset quality in Korea’s banking sector, reducing what was already a small pool of non-performing loans (NPLs). The bank’s NPL ratio has been steadily falling, hitting 0.65% last year from 0.8% in 2015 and 1.03% in 2014.
It has also managed to increase net income for the third year in a row. The bank earned W2.775 trillion ($2.47 billion) in 2016, largely the result of rising interest income.
This allowed Shinhan and its deal bankers to take an aggressive approach to pricing its Reg-S/144A deal. The bookrunners set guidance for the five-year bond at around 120bp over Treasuries on Tuesday morning, before telling investors the deal would price with a 100bp spread.
Although some bond issuers need to pay a ‘new issue premium’ when launching a bond, Shinhan appeared to do just the opposite — getting a concession from investors from providing a new liquid deal.
Bankers pointed to Shinhan’s outstanding $600 million 2.25% April 2020 note, which was trading at 138bp over the Treasuries when the new bond launched. That represents a G-spread of 108bp.
“The new deal was priced aggressively compared to its secondary curve,” a syndicate banker who helped manage the deal.
The tight pricing should not come as a huge surprise to investors. Korea National Oil Corporation sold its own $500 million five-year benchmark note this week, and also managed to get away with a 100bp spread. Just as importantly, the deal traded well in the secondary market; it was quoted at around 93bp on Tuesday morning.
Shinhan’s new bond also traded well on its debut, tightening by 3bp tightening from reoffer price, according to market data.
The group has two senior bonds maturing this year, a $500 million note due in April and a $700 million note in July.
A total of 142 accounts placed $1.9 billion of orders between them. Asian investors took 57% of the deal, while accounts in the US and Europe, the Middle East and Africa were allocated 25% and 18%, respectively. By investor type, fund managers and asset managers took 54%, banks 25%, insurers and corporations 15% and private banks and others 6%.
The bookrunners were Crédit Agricole, HSBC , JP Morgan, Mizuho Securities, Morgan Stanley. Shinhan Asia and Shinhan Investment Corp were joint lead managers.
