Lowest-ever Spread
The Export-Import Bank of Korea (Korea Eximbank) announced on May 22 it successfully priced a 5-year Eur 750 million senior unsecured benchmark in RegS format. The Korean state-run bank priced the transaction at an issue spread of Euro Midswaps plus 40 basis points, which was the lowest ever spread historically among all past Korean Euro benchmark issues.
Prior to tapping the Eur markets, on the week of May 15, the bank’s management team embarked on a pan European IR encompassing the traditional Eur centers such as London, Paris, Amsterdam, Zurich and Frankfurt. European investors were highly interested as it was the first Korean Euro dedicated IR since the Korea Eximbank last visited the Eur markets back in March 2016. Meeting slots were full in the major European centers with many diversified new investors showing interest, and the group meeting in Frankfurt also carried a good response where a number of institutions had participated.
Many European investors were also curious about the new Korean government’s policy direction and North Korea issues. The Korea Eximbank was able to guide the European investors to the general direction of the new regime’s policy, and also provide the latest update on how things are evolving with the North Korean dynamics during the pan European IR.
With the victory of Emmanuel Macron from La Republique En Marche in the May 7th French presidential elections, political uncertainty in the Eurozone has been greatly relieved. Macron’s victory over Marine Le Pen, an Anti-Eurozone candidate, created a favorable market condition for Eur issuances post-election as observed by a surge of Eur benchmark issues in the market.
Korea Eximbank had prepared enough to act in a swift manner to successfully capture the presented window. Having the Korean presidential elections on May 9 also reduced the lingering political risks in the Korean market, and helped create a preferable atmosphere for a high quality Korean issuer such as the Korean bank to issue a Eur benchmark.
From a credit curve perspective, given the upcoming redemption date of Korea Eximbank’s 2019 and 2020 Eur benchmark, the market was asking for a new Eur benchmark in order to re-establish the bank’s Eur curve. With the new 5-year Eur issuance, the Korea Eximbank now has a full Eur 2y-3y-5y curve and re-affirmed its position as a high quality frequent issuer consistently supplying liquidity to the Eur capital markets.
In terms of execution, KEXIM decided to announce the transaction on May 22 during the late afternoon session in Asia, releasing IPTs for a 5-year Eur fixed rate senior unsecured bond offering at “MS+45 bps area.”
The transaction quickly gained momentum and derived strong support from key institutional accounts in Europe, initially driving the orderbook to reach over Eur 750 million by Asia evening. The high quality real orders in the orderbook allowed KEXIM to revise price to “MS+40bps the number” and the Korea Eximbank finally priced the new issue at MS+40bps. The new issue spread was the lowest ever Euro benchmark spread historically among all past Korean Eur benchmark issues.
The final order book stood at Eur 830 million across 65 accounts. European investors were allocated 70% of the deal and Asia/others received 30%. By investor type, 36% were allocated to central banks and official institutions, 31% to asset managers, 26% to bank treasuries/other banks, and 6% to insurances and pensions. Almost the entire orderbook consisted of real orders, which proves the European investor community’s confidence and faith in high quality Korean credit such as Korea Eximbank.
Prior to the transaction, there was an additional missile test from North Korea on May 21 (Sunday), which came only a week after a missile test on May 14. Despite lingering provocations from the North, Asian market and Korean secondary spreads remained robust on the deal launch date on May 22.
The fact that Korea Eximbank achieved to print a Eur benchmark with the lowest issue spread historically and with minimal NIP proves that the lingering geopolitical risks and provocations once in a while in the Korean peninsula are now being perceived as less threatening to the global investor community.