With between US$12 billion and US$13 billion in annual funding requirement, South Korea’s policy bank Export-Import Bank of Korea (Kexim) adopts an opportunistic approach in tapping the debt capital markets. As such, it does not depend only on the US dollar bond market, but in local currency bond markets as well.

On October 1 2014, Kexim issued the first ever fixed rate sterling bond issuance out of North Asia since the global financial crisis in 2008 amounting to £300 million (US$468 million). It was the largest ever fixed rate sterling offering by a Korean issuer and the final deal size exceeded the £250 million minimum threshold to be index eligible, making Kexim the first ever issuer from North Asia to have bonds included in the Markit iBoxx sterling index.

The bank chose a rare tenor of three years and two months due to the favourable after-swap rate. The transaction has set an important breakthrough for Korean and other Asian issuers into the UK bond market, confirming that it is open to highly-rated credits such as Kexim, which further diversifies its investor base.

Kexim started 2014 with a dual tranche offering totaling US$1.5 billion in January. The SEC-registered bonds were split into equal tranches of US$750 million floating rate notes (FRNs) due 2017 and US$750 million fixed rate notes due 2024. The deal attracted a total order book in excess of US$6.4 billion, underpinned by the large participation of US investors.

“We are a frequent issuer and we need to be transparent as we are being reviewed by the Securities and Exchange Commission on a regular basis,” says Kexim CFO Sung-hwan Choi as he explains the propensity of Kexim of doing SEC-registered deals. “In addition, the US investors prefer SEC-registered type of transactions.”

Kexim returned to the US dollar bond market in August 2014 with another US$1 billion issue – equally split into US$500 million each for five years and 12 years. The five-year pricing was the lowest credit spread in the Korean five-year space since the global financial crisis.

The 12-year bonds were aimed at accommodating the investors’ appetite for yield, while taking the opportunity to extend Kexim’s US dollar credit curve. “The investors wanted a longer tenor than the usual 10 years,” Choi points out. “We are nimble and flexible if the market wants us to do something new in terms of tenor and currency.”

The dual structure brought new breadth to the market as Kexim has been at the forefront of exploring new financing options. In fact, it brought a 5.5-year transaction when it was not common in the Asian debt market. “The bond market in 2014 was very favourable for Korean issuers as investors consider the Korean paper a safe haven,” says Choi.

Apart from sterling, Kexim was very active accessing the other local currency markets in 2014. In April, it arranged its second Kangaroo bonds amounting to A$500 million (US$410 million), comprising of five-year fixed rate notes and five-year FRNs. The notes represent the first five-year maturity for Korean Kangaroo bonds.

The fixed rate notes were issued at a spread of 108bp over semi-quarterly asset swap spread, with a coupon of 4.50% per annum, while the FRNs were issued at a similar 108bp spread over three-month bank bill swap rate (BBSW). Thus, Kexim achieved the tightest spread over BBSW among the Korean Kangaroo bonds issued post global financial crisis.

In the tradition of its innovative style, Kexim in January 2014 printed a one billion renminbi (US$161 million) dual-tranche offering of dim sum and bao dao bonds – a transaction that exemplifies the merging of the two markets as both tranches are settled through Euroclear and Clearstream as Reg S bonds.

The deal involved 500 million renminbi dim sum bonds for five years and 500 million renminbi bao dao bonds for 10 years. The bao dao tranche represented the first such bond from a Korean issuer and the first 10-year paper in this market.

Going forward, Kexim, with 28 different currencies in its borrowing portfolio, will continue to monitor various markets, which will give it access to their pool of liquidity to raise funds. It was looking at the euro market in 2014, but the swap rate into US dollar was not good enough for Kexim, being more expensive by between 15bp and 20bp, according to Choi. “We will keep monitoring the euro market and we will go anytime when the market condition is beneficial to Kexim,” he adds.

In Asia, the bank is looking at other local currency bond markets after having tapped the ringgit, the baht, rupiah, dim sum and bao dao bonds. Choi is also not ruling out another issuance of green bonds this year – having tapped this market in 2013 – as this market is growing. “The first option is to launch the green bond offering in US dollar, but if the market is there, we will consider the euro market,” says Choi.