SOUTH Korean lender Kookmin Bank on April 23 priced a US$500 million bond offering, representing the first public benchmark Covid-19 response sustainability bond out of Korea, based on a proper sustainability financing framework.
The Reg S/144A five-year deal was priced at 99.420% with a coupon of 1.75% to offer a yield of 1.872%. This was equivalent to a spread of 150bp over the US treasuries, or 45bp tighter than the initial price guidance of 195bp area. At this level, the pricing was inside its outstanding curve.
While the Asia US dollar primary market remains relatively muted amid the Covid-19 pandemic, the deal generated a strong demand on the back of its scarcity value with an order book of US$3.9 billion from 181 accounts. In terms of geographic distribution, 70% of the bonds were allocated in Asia, 19% in the US and 11% in Europe. By type of investors, fund managers accounted for 64% of the paper, banks and financial institutions 23%, insurance companies and pension funds 11% and private banks 2%.
Net proceeds from the transaction will be used to finance and/or refinance new and existing projects from a combination of green eligible categories and social eligible categories in accordance with Kookmin Bank’s sustainable financing framework. In particular, the bank intends to allocate the proceeds to support SMEs and SOHOs (small-office home-office) affected by Covid-19, which satisfies the social eligibility criteria of Kookmin Bank’s sustainable financing framework, such as SME financing and microfinance, and access to essential services.
“Kookmin Bank’s successful sustainability bond transaction again demonstrates the strong investor receptivity for Asian credits following recent market volatility, as well as interest in the Covid-19 alleviation format, particularly where it satisfies social bond eligibility criteria,” says Sean McNelis, global co-head of debt capital markets at HSBC, which acted as a joint bookrunner on the transaction. “We expect other issuers to follow a similar issuance format in the coming months.”
McNelis notes that sovereigns, multilaterals and banks are increasingly raising funding for the specific purpose of alleviating the impact of the Covid-19 pandemic. “It is encouraging to see the capital markets playing a key role in the delivery of economic support to people, businesses and societies affected by this crisis,” he adds.
HSBC has supported several social/sustainability bonds in recent weeks, raising US$9.4 billion to help support Covid-19 response pledges, such as reinforcing medical provisions, loans to companies forced to close their doors and projects designed to counteract the social and economic consequences of the virus.
BofA Securities, Citi, Commerzbank, Societe Generale and Standard Chartered were the other joint bookrunners on the transaction, while KB Securities acted as a co-manager.