South Korea’s policy bank, the Export-Import Bank of Korea (Kexim), took advantage of a good issuance window to price on May 18 a three-offering totaling US$2.5 billion, representing its largest ever fund raising. It was also an opportunity for the bank to establish a new liquid benchmark on the short end of the credit curve.

 

The SEC-registered deal, Kexim’s first US dollar global bond issuance in 2016, consisted of US$500 million three-year floating rate notes, which were priced at par to yield 70bp over three-month Libor.

 

The second tranche was a three-year fixed rate bonds amounting to US$1 billion, which were priced at 99.866% with a coupon of 1.75% - or equivalent to a spread of 77.5bp over the US treasuries. This was at the tight end of the final price guidance of 80bp area (+/- 2.5bp).

 

The final tranche of US$1 billion was for 10 years, which was priced at 99.790% with a coupon of 2.625%, representing a spread of 82.5bp over the treasuries. This was also at the low end of the final price guidance of 85bp area (+/- 2.5bp).

 

The final pricing outcome came almost flat to Kexim’s US dollar secondary curve with negligible new issue concession across tenors – clearly demonstrating the high regard in which Kexim is held by the buyside community.

 

“With the uncertainties in the second half of the year, including Brexit, further US rate hike and upcoming US presidential election, we wanted to pre-fund especially when market provided a very good window such as this week, Kexim treasurer Hee-sung Yoon tells The Asset.

 

“We saw an opportune timing on the back of constructive credit markets and waited for Dell’s jumbo-sized transaction to clear out of the way. However, we were also mindful of the fact that there was a sentiment shifting towards a possible rate hike in June and thus we wanted to move with a transaction sooner than later.”

 

In executing a three-tranche transaction, Yoon says Kexim wants to choose a combination of tenors that would best enable the bank to distribute the bonds to the widest possible range of investors, while leveraging yield-driven demand from insurance companies and pension funds to bring some tension in pricing as well.

 

“The three-year and 10-year fixed rate and the three-year floating rate notes have enabled us to achieve the right balance as we’ve seen meaningful increase in the US investor participation on the two three-year tranches, compared to the recent deals out of Korea,” Yoon points out. “Employing such strategy has also enabled us to attract investors of the highest quality, some of whom are first timers in Korean transactions.

 

He adds: “We are especially pleased to see supranational agencies and corporate investors participate in meaningful portion and we expect this to be a new starting point for more to come in future Kexim and Korean transactions.

 

Yoon says another objective of putting three-year tenors in the market was to establish a new liquid benchmark on the short end of the curve. This is the first three-year benchmark transaction out of Korea since October 2014 that it guaranteed and Hanjin International issued, but that was US$300 million Reg S only transaction and not very liquid in the secondary markets. Since then, Korean issuers have not tapped this part of the curve and it was difficult to observe the fair value in the secondary markets.

 

“By putting a visible and liquid benchmark on this part of the curve, we expect this to be helpful to both Korean issuers and global investors alike in gauging the fair value of Korean papers on the shorter end,” he adds.

Bank of America Merrill Lynch, BNP Paribas, Citi, Goldman Sachs, HSBC and Nomura were the joint bookrunners for the transaction, as well as joint lead managers, along with Mirae Asset Daewoo. Kexim Asia acted as co-manager.