The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Lee Duk-Hoon, "Korea Eximbank") announced that it successfully issued global bonds worth USD 1 billion to investors worldwide in the early morning of June 24.
The issue made on the day consists of USD 0.6 billion in 5.5-year maturity bonds and USD 0.4 billion bonds, an additional amount (Re-open)* of the 12-year maturity global bonds issued previously in August 2014.
* Bond re-opening : The issuance of an additional amount of an existing bond partway through its tenor, retaining the existing bond's maturity date and coupon rate. Bonds are re-opened when there is demand for additional investment in the existing bonds.
The amount of the issue is the largest among the bonds issued by Korean financial institutions* except USD 2.25 billion global bond which had been issued by Korea Eximbank in January this year.
* USD 0.7 billion by Industrial bank of Korea, USD 0.6 billion by Shinhan bank, USD 0.5 billion each by Korea Development bank and Doosan Heavy Industries and Construction.
Pricing on the 5.5-year maturity bonds and re-opened bonds have been set at 5-year US Treasury yields + 97.5bp (1 basis point = 0.01%) and 10-year US Treasury yields + 95bp, respectively. The re-opening of bonds is notable in that the pricing was set at the level of the previously issued bonds with no premium even amid rising volatility in the market. The Bank successfully re-opened the existing bonds thanks to a high preference over long-term papers issued by Korea Eximbank among investors.
In fact, market conditions in the lead-up to the global bond issue were quite unstable. The instability in the market was resulted from several unfavorable events which occurred all at once, such as lowered economic outlook due to the impact of Middle East respiratory syndrome (MERS) outbreak in the country, difficulties in Greece's debt repayment negotiation, and materialization of Federal Reserve's plan to increase the base rate within the year. Against such a backdrop, through accurately gauging the appetite of investors, Korea Eximbank successfully issued the bonds by executing a flexible strategy of issuing new bonds and re-opening the existing bonds simultaneously for the first time for a Korean financial institution. The success is attributed to Korea Eximbank's strategy to re-open the existing bonds to satisfy institutional investors including insurance companies and pension funds who were more interested in long-term assets at a time when issuance of long-term bonds by Korean financial institutions came to a lull since Korea Eximbank's issue of 10-year maturity bonds in January this year.
A Korea Eximbank official explained, "We decided to launch the deal on June 24 by having spotted the timing when the market turned stabilized for expectation about Greece's announcement of repayment program although it was rather difficult to decide on the timing of issuance as the investors demanded higher required rate of return especially amid the rising market volatility." He added, "In particular, the re-opening of bonds by the Bank provided liquidity to investors by expanding the existing USD 0.5 billion in 12-year maturity bonds to USD 0.9 billion. On top of that, the Bank supplied the long-term funds at a competitive interest rate before the Fed increased the base rate."
The bond was oversubscribed by 2 times, attracting USD 2 billion from 147 investors. By region, 53% of the 5.5-year bonds were allocated to US investors, followed by 34% to Asia and 13% to Europe, while the re-opened bonds were allocated 73% to Asia, 18% to Europe, and 9% to the US. In particular, the participation of blue-chip investors such as sovereign wealth fund, central banks, pension funds · insurance companies and mega asset managers was notable.
Meanwhile, the foreign currency funds obtained through the bond issue will go to supporting the globalization of Korea's strategic industries including industrial plants, shipbuilding, and natural resource development which are highly influential in foreign exchange earnings and employment.