Woori Bank returns with $600 million bond

With the equity markets strengthening and the problems in Europe abating, investors are feeling it's time to spend the cash that they've been sitting on since the markets started see-sawing in May. And, with that, several Asian borrowers have come to market over the past two weeks and again this week with the return yesterday of Woori Bank.

This is the second time Woori Bank has issued bonds this year after pricing a $500 million five-and-a-half-year deal in March. Yesterday, it hit the market with another five-and-a-half-year issue, this time at a slightly larger size of $600 million.

The notes pay a 4.75% semi-annual coupon and will mature on January 20, 2016. They were re-offered at 99.356 to yield 4.885%. This is equivalent to a spread of 300bp over the five-year US Treasury yield. As there is no equivalent 5.5-year Treasury benchmark, bankers looked to the most liquid on-the-run Treasury as a pricing point. In this case it was the five-year Treasury.

There has been an influx of deals with a five-and-a-half-year maturity this year as there are clear benefits to the issuers. When such deals are marketed at a fixed spread over Treasuries and then swapped back to floating rates, issuers can take advantage of the steepness of the five-and-a-half-year swap curve and potentially achieve a tighter Libor spread. And this is what Woori set out to do when it launched its new 2016 bonds on Tuesday morning.

At the time of the announcement, the existing Woori 2015 bonds were trading at Treasuries plus 285bp, which was equivalent to a z-spread of 246bp. The other comparable issue that investors looked at was the recent Korea Exchange Bank 2016 bond that was trading around Treasuries plus 300bp at the time of the announcement. This is equivalent to a z-spread of 258bp. The z-spread takes into account the present value of the cash flow of the bond when added to the yield at each point on the spot rate Treasury curve where a cash flow is received. This is different from a nominal spread calculation, which is based on one particular point on the Treasury yield curve.