Strong institutional demand underpins KDB’s return to euro bond market

The Korea Development Bank returned to the euro bond market for the first time in five years

THE Korea Development Bank (KDB) returned to the euro bond market for the first time in five years as it priced on July 10 a 500 million euro offering (US$581.40 million), which generated a strong institutional demand.

The five-year Reg S deal was priced at 99.765% with a coupon of 0.625% and at a spread of 40bp over mid-swap. This was at the tight end of the revised price guidance of between 40bp and 45bp over mid-swap, and 10bp inside of the initial guidance of low 50bp area.

Following the pre-mandate announcement on July 9, the transaction was formally launched just after the European markets opened in the morning of July 10. The deal immediately gained momentum with the order book reaching over 750 million euro by 10am London time. Significant orders from key institutional accounts enabled KDB to revise the initial price guidance down from the low of 50bp area to between 40bp and 43bp.

The final demand amounted to 815 million euro across 55 accounts (at re-offer). In terms of geographical distribution, the largest allocation went to Switzerland at 25%, followed by Germany at 13%, France 8%, Italy 6% and Benelux 5%. Another 30% was sold to accounts in other European countries, while 13% was distributed in Asia and the Middle East.

By type of investors, central banks and official institutions accounted for 42%, banks 35%, asset managers 15%, and insurance companies and private banks 8%.

The solid order book illustrates the strong interest of European investors in the robust credit of KDB as well as in the Korean economy. Also contributing to KDB’s successful return to the euro bond market was the positive investor sentiment following the summits between South Korea and North Korea, and between the US and North Korea as demonstrated by the sizeable orders from sovereign wealth funds and central banks.

BNP Paribas, Deutsche Bank, HSBC, ING and Societe General CIB were the joint bookrunners for the transaction.

KDB, the government policy bank to support South Korean industries and national economy, has earlier raised US$1 billion in March this year through a SEC-registered dual tranche offering of US$500 million in three-year floating rate notes and US$500 million in five-year fixed rate notes.

Its euro bond offering followed that of another South Korean policy bank, the Export-Import Bank of Korea, which printed on July 3 a 750 million euro issue for five-years.

KDB last accessed the euro bond market in May 2013 with a 500 million euro deal for five years. It was then priced at 99.90% with a coupon of 1.50% and at a spread of 70bp over mid-swap.