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Sunday, 19 November 2017

Top 250 2005 - A borrower for all seasons

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The last 18 months has been the busiest on record for the Export Import Bank of Korea. Close to US$4bn has been raised across a range of maturities and currencies. Most of these deals too have had their own soundbites and the borrower's stock has never been as high. It is quite a turnaround story, as James Griffiths reports.

Just a few years back the Export Import Bank of Korea (Kexim) was on few bond houses' hit lists. The Korean policy bank has focused mainly on loan markets since the 1998 Asian crisis, but in November 2002 took the decision to broaden its investor base by using the international bond markets.

In 2002, Kexim raised US$720m from bonds. As Korean export lending grew, so did Kexim's funding needs and in 2003 the bank raised US$1.3bn from bonds. Some of these deals were successful but many were disappointments, too, an indication perhaps of the issuer pushing too hard or not heeding advice. It has learnt the lessons.

The days when banks used to moan about Kexim's approach to markets – ranging from not listening to feedback or holding out for an extra 1bp or so on fees or spread – have been replaced by many who say that Kexim is now up there as one of Asia's savviest borrowers.

Last year witnessed Kexim's coming of age. In excess of US$3bn was raised from international bonds – and all had stories to tell.

They ranged from setting a new policy benchmark bond for Korea, to pricing inside rival KDB's curve to printing Asia's tightest euro offering relative to an issuer's US dollar curve. Furthermore, when the sovereign issued in 2004, it tapped into Kexim's team for advice.

February produced an auspicious start with a US$1bn two-tranche issue of five and 10-year bonds, marking Kexim's first US targeted bond since the crisis. The paper came flat to Kexim's curve and some 5bp –10bp wide of fellow policy bank KDB.

It was also an important transaction for Korea – marking the first US dollar bond from the country in 2004 – and which would set the stall for Korea's busiest international bond year on record. A failed deal may have hit others but a well-handled bond ensured Korea and Kexim's funding year was off to flier.

"This transaction was a vital one for us – and Korea as a whole – as it really set the stage for the rest of the year. It also represented our largest international offering to date and helped extend our yield curve out to 10-years," said Sung Uk Hong, director-general and head of Kexim's international finance department.

Within a couple of months, Kexim was back tapping the bonds for US$150m on the five-year and US$200m on the 10-year. On a Libor basis, the 10-year came around 5bp inside the KDB curve, marking the first time Kexim had priced inside KDB.

Kexim's last US dollar deal of 2004 was a US$500m five-year. The deal came after weeks of watching and waiting by the borrower and it was timed to perfection, generating some US$3.8bn of orders and coming at 106bp over five-year US Treasuries, some 5bp inside KDB on a Libor basis.

In 2004 the bank also used private placements in the US dollar, yen and euro currencies in 2004 to raise cost-effective cash, and also dipped back into Hong Kong and Singapore dollar bonds, thus rendering it a rare Asian borrower to hit another country's local bond market.

The final offering for Kexim in 2004 was the policy bank's first public euro deal with a €300m five-year in October. It was the tightest priced ever euro from Asia coming at just Euribor plus 36bp – equivalent to the Libor plus 36bp level – and made Kexim the first Korean policy bank to price inside the Libor plus 40bp mark for a five-year international bond since the Asian financial crisis. It was also 5bp inside the Kexim curve and outstanding KDB paper.

Already in 2005 to date, the bank has made history when in March its US$1bn two-tranche global achieved the tightest pricing on a Libor basis for a Korean borrower at just Libor plus 28.5bp and Libor plus 38.25bp for five and 10-year money, respectively.

Asian credit markets have been rocky since March, and the whole Korean curve has widened. Yet the borrower still has some US$2bn to raise offshore. Some benchmarks are expected but opportunistic financings will also be used as Kexim continues to consolidate its position as one of the most frequent and respected issuers in the Asian bond markets.

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