Smooth euro trade for Kexim

Export-Import Bank of KoreaÆs euro-denominated bond proved a successful trade last week when it priced a Ç750 million transaction at 138bp over mid-swaps, at the tight end of guidance via Citi, Depfa Bank, Deutsche Bank, HSBC and RBS. The bonds had tightened by just 1.5bp by Friday afternoon, marking a contrast in the substantial rallies seen in other transactions earlier this year, such as Korea Midland Power, Korea Southern Power, and Swire.

ôThe market is in better shape,ö says a banker. ôNew issue premiums are definitely compressed and investors are not necessarily chasing deals so much anymore, which is what it takes to see a substantial rally.ö Or, with hindsight, this deal was potentially more accurately priced.

The deal followed a European non-deal roadshow held by Kexim with Royal Bank of Scotland, which generated strong investor interest: ôThe euro market has improved, and we found investors to be very receptive,ö says JK Kim, director general at Kexim.

The book was almost two times covered, with investors buying into the rarity of euro-denominated paper from this kind of issuer, and the fact that this was a large and therefore relatively liquid transaction.

According to a source, the euro-denominated trade allowed Kexim to price favourably versus arch-rival KDB, whose 2013 dollar bonds were trading very tight in the secondary market, at 123bp over Libor, due to a ôspecific change of control putö. A euro issue also enabled a shorter exposure to the market, since there was no need to keep the book open during US hours. The deal priced during London trading hours.

Some bankers claim that Kexim achieved a more attractive borrowing cost than it could have in dollars, estimating the deal to have priced at the equivalent of 143bp over Libor. A new dollar issue would reportedly price at 144bp to 149bp over mid-swaps, according to a source familiar with the trade. (Libor and mid-swaps levels are roughly the same).

Oddly enough, Kim doesn't reckon Kexim made any savings with this transaction. But probably equally important is the fact that the bank can take pride in pricing the first euro issue from an Asian borrower in months. Kexim likes to set examples, as it has done in the ringgit, peso and Turkish lira market.

Kim says the transaction will allow other Korean issuers to benefit from a euro benchmark to price against, giving borrowers the confidence to consider this market.

In terms of comparables, the bonds were priced between 60bp and 66bp back from Kexim and KDB CDS. This compares to Kospo and Korail, which priced at about 75bp back from CDS.

For further statistical details, please see pricing terms published on FinanceAsia.com on May 16.