Euroweek debt capital markets, October 28 2011
28 October, 2011AFR: Best bond funds of the last three years
30 October, 2011Euroweek, October 29 2011
The Korea Development Bank illustrated the renewed optimism in dollar markets overnight with a tightly-priced US$1 billion 5.5-year benchmark.
The deal’s six joint bookrunners – Bank of America Merrill Lynch, Credit Suisse, Daiwa, Goldman Sachs, KDB Asia and Mizuho – had initially suggested a deal of at least $500 million, with pricing around 300 basis points over Treasuries. Instead, the deal raised US$1 billion and was still six times oversubscribed by over 350 accounts, pushing pricing to a revised range of 280-290, and eventually locking in at the tight end of that range. Whereas Korea National Oil Corporation (KNOC) had paid a new issue premium of at least 30 basis points in its market-reopening US$1 billion bond a week earlier, those close to the deal suggested that the re-offer spread on the KDB bond represented a new issue premium of just five basis points – the lowest in all emerging markets since May.
Several things worked in the deal’s favour, most obviously the sense of progress in Europe’s sovereign debt crisis. The issuer had originally been talking about a deal next week, but moved quickly to take advantage of positive sentiment, without bothering with a global roadshow. Books were closed at 9.30am New York time when the level of demand became clear. “It’s a confidence game,” said one banker. “Nothing matters except Europe at the moment when it comes to investor sentiment.”
Another may have been the fact that KDB is expected to be privatized with an IPO next year, at which point its paper is expected to become subject to an explicit government guarantee. KDB is already rated flat to the sovereign (A1/A/A+).
Almost half (48%) of the 3.875%, SEC registered, senior unsecured deal went to Asia, with 37% to the US – a traditional stronghold of demand for Korean bank paper – and 15% Europe. 39% went to asset managers, 23% to banks, 20% to corporates, 10% to private banks and 8% to insurers and pension funds. There were several anchor orders of $100 million or more from Asia.
Euroweek: Bank of East Asia
Bank of East Asia completed a US$500 million bond late on Friday to continue the revived momentum in the Asian dollar bond markets.
Hot on the heels of a $500 million issue from Sun Hung Kai Properties and $1 billion from Korea Development Bank, Bank of East Asia followed their lead by tightening guidance dramatically and issuing a well-received benchmark.
The 10.5 year Regulation S bond, callable after 5.5 years, pays 400 basis points over 10-year treasuries – a remarkable inward revision from initial price talk of 500 basis points plus or minus 12.5 points. Guidance then moved to 450-475 basis points over treasuries, before settling fully 50 points inside the tight end of that range. Those close to the deal report an orderbook of $4.4 billion – enough to cover it almost nine times over – from over 230 accounts.
The bond carried a 6.375% coupon and priced at 99.849 to give a yield of 6.395%. Asia led the support for the deal and accounted for 83% of the book, with Europe adding 11% and offshore US (this being a Reg S deal) 6%. Fund managers accounted for 36% of demand, private banks 25%, banks 21%, insurers 12%, and corporates and others, 6%.
The subordinated bond, rated A3 by Moody’s and BBB+ by Standard & Poor’s, was lead managed by Deutsche Bank, Citigroup and UBS. After 5.5 years, the coupon resets to a fixed rate equal to five year treasuries plus the initial spread.
