As international capital markets grapple with the Covid-19 pandemic, South Korea’s policy bank, the Export-Import Bank of Korea (Kexim), believes bond issuers should, more than ever, maintain closer communication with investors.
On April 20, Kexim priced a dual-tranche bond offering totalling US$1.46 billion that attracted strong investor demand and gave other Korean issuers the confidence to access the market.
The Reg S deal had a US$700 million floating rate note (FRN) for three years that was priced at par with a similar coupon and re-offer yield of 120bp over a three-month US dollar Libor. This was 40 basis points (bp) tighter than the initial price guidance of 160bp area. The proceeds will be used for general funding purposes, including the repayment of foreign currency obligations and the making of foreign currency loans.
The other tranche was a green bond offering amounting to 700 million euros (US$761 million) for five years, which was also priced at par with a similar coupon and re-offer yield of 0.829%. This was equivalent to a spread of 105bp over mid-swaps. The proceeds will be utilized to extend loans to green projects that promote the transition to low-carbon and climate-resilient growth.
BNP Paribas, Citi, HSBC, Societe Generale and UBS acted as the joint bookrunners for both tranches.
In launching the FRN tranche, Kexim closely monitored the primary market and saw investor appetite returning following some signs of the Covid-19 pandemic slowing down globally. The bank, a frequent issuer outside of Korea, strongly believed it would require optimal timing to launch a benchmark-sized deal in the primary market and secure healthy investor demand, which would then help pave the way for other Korean issuers to access the market.
Kexim was looking for the best combination of tenors to target the maximum number of high-quality investors for the optimal pricing. The bank has historically seen strong support in their three-year FRN issuances from investors, including central banks and sovereign wealth funds, in Asia and in the Europe, the Middle East and Africa (EMEA) region.
In addition, Kexim believed it would be better for investors in the current market conditions to go with defensive tenors, such as three years, and it was proven right as demand for the FRN tranche was greater than expected. It announced the deal with an initial price guidance of 160bp over the three-month US dollar Libor, which it hoped would create strong momentum from the outset, while ensuring a quality order book that would eventually allow the bank to tighten the final pricing.
Indeed, the FRN tranche garnered a total demand of US$5.1 billion from 240 accounts, with 56% of the paper allocated in Asia and 44% in EMEA. By type of investors, banks accounted for 44%; asset and fund managers, 21%; central banks and sovereigns, supranationals and agencies (SSAs), 20%; pension funds and insurance companies, 13%; and private banks and other investors, 2%.
For the euro green bond offering, which was launched concurrent with the FRN, Kexim was able to identify green-specific funds as well as green-oriented investors, which actively participated throughout the book-building process and contributed to attracting a strong order book.
The total demand amounted to 3.2 billion euros from 224 accounts, with the bonds distributed in Germany accounting for 21%; the UK, 16%; Switzerland, 9%; Luxembourg, 8%; France, 7%; Denmark, 6%; other EMEA countries, 22%; and Asia, 11%.
Fund managers were the biggest buyers of the bonds accounting for 45%; central banks, supranationals and official institutions, 24%; pension funds and insurance companies, 12%; banks, 11%; and private banks and other investors, 8%.
Going forward, Kexim will continue to seek opportunities to issue green bonds, irrespective of the currency market in line with its funding requirements.
With the latest bond issuance, Kexim, this year, has so far raised about US$2.9 billion in foreign currency, denominated in US dollars, euros, Australian dollars and Hong Kong dollars, among other currencies.
The bank is looking to raise around US$10 billion from the offshore bond markets in 2020 – which was in line with the amount it raised last year. Kexim is also targeting to raise 10 trillion won (US$8.13 billion) in the domestic bond market and has so far raised 8.8 trillion won to date.