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Monday, 11 December 2017

With style and panache

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It would be no exaggeration to describe the Export-Import Bank of Korea as Asia’s star issuer. No other issuer from ex-Australia, ex-Japan Asia prints as much in the offshore bond markets annually as Kexim, nor across a wider breadth of currencies or with as consistent a record of superlatives, be it for size or canny and often daring timing.

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The policy bank has been instrumental to South Korea’s economic growth since its inception in 1976 as a government-owned trade finance lender, not only via its lending but also, crucially in debt capital market terms, for providing benchmarking curve points to the universe of Korean issuers of offshore debt.

Kexim raised the bar high in terms of its offshore debt issuance activity, by targeting in January a mammoth US$11bn to be raised offshore, or US$700m more than it raised in 2011 and a record total for the lender. Of this, US$4.5bn was earmarked for US dollar issuance, and with typical panache, Kexim managed to achieve half of this total, with a US$2.25bn dual tranche Global. The transaction in early January defied expectations that the offshore markets would be challenging at the start of the year, and possibly shut for a prolonged period. Moreover, the Kexim trade was the largest ever from an Asian quasi-sovereign.

The five and 10-year transaction had echoes of the trailblazing dollar Global which Kexim brought in January 2009 at the height of the financial crisis when, as was the case in January, many expected a prolonged market closure.

This year’s deal helped propel what has been a record issuance period for the Asia G3 markets, with US$65.8bn-equivalent printing so far this year, according to Thomson Reuters data. Korean issuers account for US$11.7bn of that total, or 17.6%, versus the US$10.9bn which printed in the same period last year.

The clear pricing points on the on-the-run five and 10-year Kexim curve have helped provide pricing clarity for the FIG and corporate names which printed over the period.

“Given our status as [South] Korea’s largest issuer in the offshore debt markets we see it as our role to provide benchmarking for other Korean issuers. At the same time we always respect the markets and aim to leave something on the table for investors as well as trying not to crowd out smaller Korean issuers from the markets.

“In everything we do we are benchmarking against US dollar Libor and if we can achieve our target via issuance in the non-core currencies via the MTN route we will do so. For us it’s all about tenor, pricing to our targets and timing,” said Choi Sung Hwan, head of offshore funding at Kexim in Seoul.

Looking East

Kexim’s leadership role also extends into opening new markets, and in mid-May a blowout ¥100bn (US$1.25bn) three-tranche Samurai showed the opportunity in Japan. The biggest yen bond from an Asian issuer other than the Asian Development Bank created an auspicious backdrop for other South Korean companies to follow.

“In everything we do we are benchmarking against US dollar Libor and if we can achieve our target via issuance in the non-core currencies through the MTN route we will do so. For us it’s all about tenor, pricing to our targets and timing”

Kexim’s blockbuster Samurai represented the policy bank’s first wholesale offering this year in the yen debt markets. More significantly, the advantageous yen/US dollar basis swap at the short end of the yield curve meant that Kexim was able to print inside its implied US dollar curve at two and three years. At five years, it priced at a small premium to its implied dollar levels, but nevertheless the trade won wide praise among bankers for its canny take on the basis swap as well as for spreading the net further afield once the dollar market had firmly shut.

The policy bank has also set the bar high for South Korean corporate treasurers shopping around for alternative funding sources by issuing in a wide variety of non-core markets, where the basis swap enables it to meet its funding targets at the five-year duration point or less. JP Morgan, for instance, has arranged 20 non-core deals for Kexim this year totalling around US$1bn-equivalent, with the most recent trades comprising South African rand and Russian roubles at five years.

Over the past three years, Kexim has also printed in Turkish lira, Swiss francs, Brazilian Real and even Peruvian nuevo sol and continues to take an opportunistic approach in these markets, jumping on basis swap opportunities which enable it to meet its funding target, usually at two to three-year maturities.

Kexim has issued US$6.5bn-equivalent of offshore debt so far this year and is well ahead of schedule, with Choi observing that the decision to front-load funding was deliberately taken in the face of high global financial market volatility and the dangers inherent for Asia primary markets in the eurozone crisis.

“We have a very strong liquidity position right now and are happy that we managed to prefund early in the year. High volatility on the back of the eurozone situation can shut the G3 primary market for a prolonged period, so it was something of a coup for us to get the two large dollar and yen trades done and establish liquid points on the Kexim offshore curve,” said Choi.

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