The A1/A+/A- rated state-owned issuer was able to reach its targeted size despite a busy primary market on Monday that saw Metallurgical Corporation of China price a $500m tap of its 2.95% 2020s and China’s Oceanwide Holdings International sell a $200m 363-day bond.
Bankers and investors were expecting a busy week and in the end four more issuers rolled out deals on Tuesday, including the Republic of Indonesia seeking more than $3bn of notes in dollars and euros.
“Investors had a lot of options to choose from,” said a syndicate banker on the Nonghyup deal. “This was a good outcome in a day of heavy supply.”
What helped was the fact that investors widely consider Nonghyup to be among the more savvy issuers in the market. It hits the dollar market regularly in the second half of the year, and the lender’s outstanding $500m 2.25% from 2012 will mature this September.
A Hong Kong banker on the trade added that the issuer was able to benefit from a roadshow held ahead of the transaction.
Korean banks in general have been a relatively stable and improving story in Asia, David Marshall, senior analyst at CreditSights, told GlobalCapital Asia. Increased attention on North Korean risks does cause some worry, but it is difficult to price in, and investors are not demanding any compensation for the risk, he said.
Nonghyup’s $500m 1.875% 2021s, issued in September, were trading at 101bp over US Treasuries ahead of the new launch, with market watchers saying its government link made a difference when it came to pricing the new transaction.
“If you looked at it on a standalone basis, you would price it wider,” said Marshall. CreditSights put fair value for the new bonds at 94bp over.
Commercial vs policy banks
There were some quirks when it comes to pricing Nonghyup’s new trade, as the credit is seen somewhere between a commercial bank and a policy bank. Founded in 1961 as part of an agricultural co-operative, the bank is owned by Nonghyup Financial Group, which is in turn owned by the National Agricultural Cooperative Federation. As such, the issuer has a quasi-policy role in Korea’s agricultural sector, as it lends to farmers at concessionary rates with the government making up the difference.
Bankers on the deal referenced both policy and commercial banks when looking at the trade, alongside the bank’s existing notes. “The policy banks are the most frequent issuers and have the most liquid curve out there,” said the Hong Kong banker.
Leads Bank of America Merrill Lynch, Citi, Crédit Agricole, Nomura, Société Générale and UBS began marketing the 144A/Reg S five year transaction at 120bp over US Treasuries area, following a global roadshow last week.
Books exceeded $1.3bn when final price guidance was announced at a definite spread of 105bp at the end of the day in Asia. The senior notes closed at the same level, being priced at 99.474, with a coupon of 2.875%. They tightened slightly on Tuesday, showing good follow-up demand from offshore investors, said the Hong Kong banker.
Analysts at MUFG put fair value for the deal at 95bp over US Treasuries — inside where the notes priced.
“While it plays a policy role that promotes the economic status of farmers, its bonds do not carry the solvency guarantee language as found in other policy banks,” the analysts said in a note on Tuesday.
The book closed with $1.3bn of orders from 84 accounts. Some 68% went to Asian investors, 15% to Europe and 17% to the US, a typical allocation for such a deal, said the syndicate banker.
The allocation falls in line with the issuer’s goals of diversifying its investor base offshore as well, added the Hong Kong banker.
About 47% was allocated to fund managers, 37% to banks, 14% to hedge funds and private banks, and 2% to insurers and central banks.
The Singapore-listed notes are expected to hold a A1/A+ rating.