Asia’s credit markets continued to boom in 2017, but geopolitical tensions meant that South Korea faced its toughest time in years. For its diverse funding strategy, and its continued engagement with global investors, Export-Import Bank of Korea is IFR Asia’s Issuer of the Year.
Export-Import Bank of Korea overcame a challenging time in the global markets in 2017 thanks to a long-standing commitment to diversity. When South Korea ousted its president and the threat of military action to the north sent some global funds running to cut risk, Kexim’s connections with an extensive range of investors across multiple markets allowed it to meet its funding targets without missing a beat.
Kexim sold bonds in 12 currencies to raise over US$10bn during IFR’s review period, including private placements, tailoring different deals to discrete groups of investors. It maintained its commitment to the global markets, printing three benchmarks in dollars and euros over the 12-month period and setting valuable, liquid pricing references for Korean borrowers despite a challenging backdrop.
“Kexim’s deals in 2017 are a series of consistent and consecutive achievements against the most serious geopolitical risk, which has been the main culprit for market volatility for all of this year,” said Hee Sung Yoon, director-general of the international finance department.
Kexim’s long track record and its deep relationships paid dividends later in the year, when tensions around North Korea spooked global investors. South Korea’s credit default swaps were especially volatile, with five-year protection trading as high as 75bp in late September, out from 45bp at the start of the year.
Despite the turmoil, Kexim was able to raise US$2bn in October and keep the funding channels open for other Korean borrowers. Rather than shrink from the market, it rose to the challenge, hitting the right window and pricing the deal to appeal to a broad investor base.
Its approach won praise from bankers and investors.
“What Kexim did so well was that they respected and cared about investors. They knew what should be done to expand their investor base, especially in the US, amid the constant noise from North Korea’s nuclear tests,” said a banker who worked on the October deal. “Kexim in fact had great participation from every region, which was so critical for them as they are one of the most frequent issuers in Asia.”
Kexim, rated Aa2/AA/AA–, began the year with South Korea facing a constitutional crisis. Park Geun-hye, its first female president, was facing impeachment proceedings that would end in her removal from office on bribery charges, leaving the country without a leader for two months.
Despite the distraction, Kexim kicked off its 2017 funding programme in January in its customary style, with a three-part US$1.5bn Global bond issue that refreshed its US dollar curve. It sold a US$500m three-year fixed-rate tranche at Treasuries plus 70bp, and two US$500m five-year notes, satisfying demand for both fixed-rate and floating-rate paper. The fixed tranche priced at Treasuries plus 92.5bp and the floater at 87.5bp over Libor.
Its outstanding 2020 and 2022 bonds had become illiquid and were trading wide of its curve, creating an opportunity to set new benchmarks. The deal also followed a 10-year US$1bn sovereign offering from the Republic of Korea, and gave other Korean borrowers a more liquid reference at shorter tenors. Daiwa, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan and Standard Chartered were joint bookrunners.
Kexim in February turned its attention to alternative markets, tapping Australian, Canadian and New Zealand dollar investors for a combined US$899m.
First up was a A$500m (US$381m) Kangaroo bond that deepened its relationships with Australian investors – especially fund managers and insurance investors. The deal was split between a A$250m five-year floater at 117bp over three-month BBSW, a A$150m 3.5% five-year fixed at 117bp over swaps, and a A$100m tap of its 4% June 2027s at plus 125bp.
Kexim’s Kangaroo was the first three-tranche issue in Australia from an Asian borrower and priced within 10bp of its Double A rated Australian peers, tighter than its previous issue. But for Kexim it was all about diversification: almost half of the total issue went to domestic investors, who took 52% of the five-year floater, 43% of the five-year fixed-rate paper and 38% of the 2027 tap – far higher than the typical 20%–40% on Asian Kangaroos. ANZ, Citigroup, UBS and Westpac were joint lead managers.
Canada was the next stop nine days later, in the shape of a C$300m (US$230m) three-year Maple bond – its second in the Canadian market and the first since 2014. Bank of America Merrill Lynch, RBC Capital Markets and TD Securities ran that deal.
A second New Zealand outing came shortly after. Kexim’s NZ$400m (US$288m) five-year Kauri bond at the end of February, via joint lead managers ANZ, BNZ and Deutsche Bank, followed a NZ$350m five-year the previous July (increased to NZ$400m the following month). It priced 113bp wide of mid-swaps and 152bp over the May 2021 NZGB.
POLITICAL CRISIS
May’s five-year euro benchmark, less than two weeks after President Moon Jae-in took office, was another exercise in diversification. Kexim has been a sporadic issuer in euros over the years, but stepped up its focus on the single currency in 2016 and followed up with a second €750m issue in 2017, appealing to European investors who do not typically buy its dollar notes. Central banks and official institutions took 36% of the deal, helping Kexim price at mid-swaps plus 40bp, its lowest spread so far.
The deal also came after a week of missile tests in North Korea, which raised tensions with the US but seemed to have no effect on demand for Kexim’s credit. BNP Paribas, Goldman Sachs, HSBC, ING and Societe Generale were joint bookrunners.
The political drama underlined the value of diversity, and Kexim set out to target an alternative pocket of demand in June with a US$400m five-year floating-rate note in Taiwan’s Formosa market.
The deal was Kexim’s third in the Taiwan-listed format and followed a 2016 deal that had beaten its size expectations.
“I had the experience of meeting with a lot of investors after the 2016 deal,” said Jessica Gu, Kexim’s head of foreign currency funding in Asia Pacific. “We would talk about the levels where both investor and issuer would agree the deal can be. It was very clear that a deal could be made.”
The Reg S offering priced at the tight end of initial guidance of 80bp–85bp over Libor and was listed in Taipei and Singapore, giving Kexim’s international investors a chance to participate in the deal. Standard Chartered (Taiwan) was the sole bookrunner.
Kexim also priced a Swiss franc offering in June at its tightest spread so far, raising SFr250m (US$258m) from an eight-year bond at 22bp over mid-swaps. It was Kexim’s eighth visit to the Swiss market and its first since March 2014. Commerzbank, Credit Suisse and UBS were joint bookrunners.
MISSILE THREAT
Kexim turned to the offshore rupee market in August to fund some commitments to low-carbon projects, pricing Rs3.2bn (US$50m) of Green Masala bonds at 6.2%. The four-year deal came with 144A/Reg S documentation and went to green institutional investors in the US, Europe and Asia.
JP Morgan was the sole bookrunner and green structuring adviser.
“Through this transaction, we set yet another precedent in Korea that Green bonds do not have to be in public benchmark-size offering format,” said a Kexim official at the time.
Diversification was again at the fore in September, as Kexim sold S$200m (US$148.8m) of five-year bonds – its biggest in Singapore since 2013. DBS and Standard Chartered arranged the deal, which priced at 55bp over Singapore dollar SOR for a yield of 2.318%.
But it was the October US dollar benchmark – IFR Asia’s South Korea Capital Markets Deal of the Year – that showcased Kexim’s sophistication and its commitment to the global capital markets.
The US$2bn Global, the country’s largest dollar bond in 12 months, underlined Kexim’s ability to access funds in challenging market conditions, coming the month after North Korea’s latest nuclear experiment triggered a 6.3-magnitude earthquake.
Kexim sold a US$1bn five-year at Treasuries plus 100bp, a US$600m five-year floater Libor plus 92.5bp and a US$400m three-year fixed at Treasuries plus 90bp.
The deal won the support of a wide investor base at a challenging time for the country. Importantly, it also showed Kexim’s maturity as an issuer and its long-term approach to investor relations: it could have priced tighter if it had relied solely on Asian buyers. Notably, 41% of the fixed-rate 2022s went to US buyers, more than double the allocation in recent Korean deals, while Europe took 20%.
One source said the US$4.4bn order book had included single tickets of US$100m from global investors, making the deal a strong vote of confidence in South Korea’s ability to withstand adversity.
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