Woori Bank took advantage of bullish market conditions early Thursday morning to close an aggressively priced $500 million 10-year lower tier-2 issue. Despite its punchy pricing, the bonds tightened in the secondary market during the day.
The bonds priced at Treasuries plus 250 basis points, at the tight end of the final Treasuries plus 250bp to 260bp guidance, to yield 6.021%. The initial guidance was in the area of 270bp, so the bonds came at least 20bp inside that. They further tightened by 7bp in secondary market trading and were quoted at Treasuries plus 243bp yesterday morning.
“I think it’s impressive that they managed to get away with that pricing,” said one banker away from the deal.
Barclays Capital, BNP Paribas, Bank of America Merrill Lynch, HSBC, J.P. Morgan, UBS and Woori Investment & Securities were the bookrunners.
Back in February 2009, the Korean bank shocked investors when it failed to call its $400 million subordinated bond. Since then, credit markets have improved dramatically and all that appears to be water under the bridge.
Woori’s latest lower tier-2 bond does not have a call option or a coupon step-up, as all step-up instruments will be fully disqualified on the first call date under Basel III guidelines. There is also no regulatory call.
The bonds also do not have any loss-absorption features, such as a write-down on principal or conversion to equity, which means that the bonds will need to be amortised from 2013.
According to Basel III guidelines, all lower tier-2 bonds issued after 2013 will need to have loss-absorption features, which would make them riskier for investors to buy and more expensive for banks to issue. Lower tier-2 bonds issued before 2013 without loss-absorption features will still count as capital, but will need to be gradually amortised from 2013 onwards.
Woori is using the funds to refinance its $1 billion lower tier-2 bond, which matures May 2016 and is callable in 2011. The tight pricing it achieved might encourage other regional banks with refinancing needs to follow suit with sub-debt issues of their own, though some banks are still grappling with how Basel III affects them.
“There is uncertainty as to what percentage of sub-debt will be amortised under Basel III,” said Youngil Choi, a senior analyst at Moody’s. “Also, at the moment, Korean regulators have yet to come up with a local definition of what constitutes bank capital for Basel III.”
Pricing on Woori’s sub-debt certainly came tight. For comparison, investors looked at Woori’s own senior bonds due June 2016, which were trading at Treasuries plus 185bp. Woori’s new sub-debt matures on April 13, 2021 and the tenor extension would have added another 25bp, putting the fair value of the new bonds at around Treasuries plus 210bp (without taking into account the difference between sub-debt and a senior bond).
Pricing at Treasuries plus 250bp meant that Woori paid about 40bp more for a subordinated bond, less than the 55bp to 70bp more paid by AA-rated banks like HSBC and Credit Suisse for their sub-debt. Woori Bank is rated A1 by Moody’s and A- by S&P and Fitch.
The bank completed a two-team roadshow in New York, Boston and Los Angeles, plus London, Frankfurt, Singapore and Hong Kong earlier this week.
The deal eventually gathered a $3.7 billion order book from more than 300 orders. Professional investors in the US gave strong support to the deal, buying 40%. Asia took 34% and European investors 26%. By account type, fund managers took up 63%, private banks 21%, banks 11% and insurance/others 5%. The coupon was fixed at 5.875% and the bonds were reoffered at 98.915.
Fufeng
Fufeng Group, a Chinese monosodium glutamate producer, also closed a well-received $300 million five-year non-call-three deal early yesterday morning. The bonds priced at a yield of 7.625%, at the tight end of the 7.625% to 7.875% guidance. The bonds were bid at 100.50 yesterday afternoon, half a point above the par issue price.
The total order book was more than $2.5 billion from 230 accounts. Asia bought 46%, Europe 33% and the US 21%. Fund managers bought 62%, banks 12%, insurance/pension 6%, private banks 13% and others 7%.
Citi and Deutsche Bank were joint bookrunners. The proceeds will be used for the construction of the group's production plant in Hulunbeir, Inner Mongolia. The issue is rated BB by S&P and Fitch.
Otherwise, G3 bond markets are poised for a bumper crop, with Posco and Megaworld expected to price bonds today. Citic Pacific is expected to price its benchmark senior bond and perpetual today. Elsewhere, China real estate company Franshion concluded roadshows yesterday and could launch a seven- or 10-year bond as early as today.
Indian Overseas Bank has mandated Citi, HSBC, J.P. Morgan, Royal Bank of Scotland and Standard Chartered for its dollar bond. The bank held roadshows in Singapore yesterday, Hong Kong today and concludes them in London on Monday. China Automation Group has also mandated UBS as sole bookrunner for its five-year dollar senior note issue.
