Korea Housing Finance Corporation (KHFC) decided to tap the euro market when it printed on October 24 the first social covered bond out of Asia amounting to 500 million euro (US$568.20 million).

The five-year Reg S/144A deal was priced at 99.927% with a coupon of 0.75%, or equivalent to a spread of 40bp over mid-swap. This was at the tight end of the final price guidance of between 40bp and 45bp, and 10bp inside of the initial guidance of 50bp area.

In executing the transaction, KHFC conducted a two-team roadshow, with one team meeting investors in Asia and the US, and the other team the European investors.

"While KHFC conducts a roadshow with their every deal, the investor meetings this time around were focused on Europe," says a banker familiar with the transaction. "There has been a long discussion with KHFC on the euro market, and the banks have been telling the company that there is a receptive market for covered bonds in Europe, where most of the investors are based."

At the same time, launching a euro-denominated transaction will enable KHFC to diversify away from the US dollar as a funding source.

In doing so, the swap market worked in KHFC's favour. The banker reckons the company saves between 7bp and 8bp in tapping the euro bond market, when compared with a similar transaction in the US dollar market.

"It was a good deal for KHFC. They achieved a reasonable saving, in addition to the diversification benefit," the banker adds.

In launching the transaction, KHFC prepared its social covered bond framework in compliance with the International Capital Market Association (ICMA) Social Bond Principles.

Second-party opinion provider Sustainalytics is of the opinion the framework is credible and impactful, as well as aligns with the four core components of the Social Bond Principles 2018.

Sustainalytics also considers KHFC's mortgage loan products will help to achieve two social objectives, one of which was to improve the housing welfare of targeted vulnerable population, especially the low- and middle-income households. Another objective was to provide stable supply of affordable and sustainable housing finance in South Korea through its long-term, low interest fixed rate loans.

The transaction garnered a strong order book of 1.65 billion euro from 93 accounts, enabling KHFC to tighten the price guidance. The bulk of the bonds, around 90%, are distributed in EMEA countries, mostly in Europe, while the remaining 10% are sold in Asia.

By type of investors, fund and asset managers accounted for 60% of the paper – which was in line with most of the demand for covered bonds – while banks took 24% and central banks 16%.

BNP Paribas, DBS, ING and Societe Generale Corporate and Investment Banking acted as the joint lead managers for the transaction.

Established in March 2004, KHFC is a state-run government enterprise that supports the Korean government's housing welfare policy by facilitating the long-term, stable supply of housing funds and other related instruments.