One of Asia’s most prolific bond issuers, Export-Import Bank of Korea (Kexim), continues its borrowing spree in the offshore bond markets in April, focussing on alternative sources of funding amid the continuing volatility in the global financial markets.
It first tapped the Swiss franc bond market on April 18 raising a total of 350 million Swiss francs (US$330 million) in two tranches arranged by ABN AMRO. The first tranche is for 250 million Swiss francs for three years and the second tranche is for 100 million Swiss francs for two years. After the Swiss franc-US dollar currency swap, the interest rates amount to 73bp over Libor for the two years and 93.5bp over Libor for the three years, which are between 10bp and 20bp lower than directly issuing bonds in the US dollar market.
Jin-Kyung Kim, director-general for international finance department at Kexim, says the two-tranche offering was an offshoot of the transaction launched by the Korea Development Bank (KDB) a week earlier. “KDB launched a five-year deal ahead of us and so we do not want to offer the market a transaction with the same maturity,” he points out. “And besides, our previous Swiss franc deal in January 2007 was also for five years.” That deal was also for 350 million Swiss francs, which at that time was the largest size ever issued in that market by a Korean issuer.
Kim adds: “When we tapped the market in January 2007, we promised investors that we will come into the market every year. We want to be a regular issuer in this market. We were looking for an opportunity to go back and we found out that the pricing was cheaper than the other markets.”
The KDB deal was for 200 million Swiss francs arranged by BNP Paribas. The issue was priced at 100.196% with a coupon of 4.125% to offer a yield of 4.205% or 117bp over mid-swaps.
A week later, Kexim tapped the Mexican peso bond market for 800 million Mexican pesos (US$76.5 million), re-opening the 10-year deal that it launched in October 2007. Arranged by Merrill Lynch, the bonds were priced at 100bp over the Mexican treasury bond. This is the second time Kexim tapped this market this year, having raised 1.2 billion Mexican pesos in five-year bonds in January.
But shortly before the Mexican peso bond offering, Kexim was forced to pull a Samurai bond issue after failing to secure the desired deal size relative to the price it was willing to pay. “Originally, we wanted to raise at least 50 billion yen (US$475 million),” explains Kim. “We were willing to pay a bit more as long as we raised the desired deal amount, but there was not enough for us to go ahead with the transaction. It does not make sense for us to print a smaller deal with a higher pricing. It will affect all our private placement activity and future funding cost.”
A senior banker in Hong Kong agrees with Kim. “Going ahead with a smaller issue and a higher price is going to hurt Kexim’s private placement deals since investors will use it as a reference point,” he says. “Pulling out the deal is the right thing for them to do. I do not think issuers can be forced into launching a transaction in this market environment. Kexim also has alternative funding sources so they cannot be held hostage to a market if they feel it is different from their expectations.”
Kexim last tapped the Samurai bond market in June 2007 with a 35 billion yen offering, paying just 17bp over yen Libor.
Kim says Kexim is also ready to tap either the US dollar or the euro market anytime if a window presents itself. He notes that the general tone in the market is improving. “Many investors, especially those in the US, are looking for stability and lower volatility before buying into a transaction,” he adds. “They may like the credit and the pricing, but what they don’t want is to buy into a deal and then see its value fall the next day. That is their main concern.”
Kexim’s funding requirements this year are estimated at US$7.8 billion, up from US$5.9 billion in 2007. – CS
