Bulldog to Samurai Bonds Show Investors Unfazed by North Korea TensionsBy and
KDB, Shinhan sell rare bonds in sterling and yen, respectively
Conservative buyers’ demand shows N.Korea concern retreating
South Korean borrowers are rushing to offer uncommon bonds in the international market, highlighting how overseas investor demand for the nation’s debt is strong in spite of an escalation in tensions with the North.
Here are some of the latest Korean deals aimed at what’s considered conservative investor bases such as those in Japan.
- Korea Development Bank sold a 250 million U.K. pound ($331 million) five-year note this week, in the first so-called bulldog bond by a South Korea issuer in three years. The policy lender raised $300 million from U.S. dollar bond investors in Taiwan just last week.
- Shinhan Bank priced 26.3 billion yen ($230 million) of Samurai bonds on Friday, the first sale of the yen securities by a South Korea borrower in almost a year -- there was only one Samurai issuance from the country last year. The lender said in a statement it increased the issue size due to active demand, from the original plan of 15 billion yen.
- Korea Housing Finance Corp. sealed a rare Asian covered bond transaction this week, pricing a five-year $500 million offering that attracted more than $1 billion of orders. The notes are rated Aa1 by Moody’s Investors Service, one level higher than the issuer’s rating because it’s backed by residential mortgages.
For KDB’s pound-denominated bond, 77 percent of buyers were U.K investors and the rest were from Europe excluding the U.K., according to the state-owned bank. About 52 percent of the investors were fund managers, followed by 41 percent that were central banks or banks and 6 percent from pension funds or insurers. Private banks took the remaining 1 percent.
“There is a need for sterling investors to diversify their credit risk,” said Jean-Charles Sambor, deputy head of emerging markets debt at BNP Paribas Asset Management in London. “Korea is a great fit for them. The country has a very high credit-quality profile and in addition, unlike a large proportion of sterling-denominated issuances, the risk profile of Korea is materially different as it has very little sensitivity to U.K.-specific factors.”
While borrowers have been selling dollar bonds throughout the year, issue sizes have increased. Export-Import Bank of Korea, a policy lender, completed the nation’s largest dollar debt sale of 2017 this week and Kia Motors Corp. last week served up a $900 million U.S. currency deal.
Borrowers in the pipeline to sell dollar securities include Korea Electric Power Corp., which plans to sell a green bond, and Heungkuk Life Insurance Co., which is planning to sell subordinated capital securities, according to people familiar with the matter.
One temptation for investors is the recent increase in Korean yield premiums. Average spreads on dollar bonds by the nation’s issuers have risen 19 basis points this year amid tensions in the peninsula, compared with a 27 basis point-drop in Asia investment-grade notes outside Japan, JPMorgan Chase & Co. indexes show.
“Korean dollar bond spreads have widened throughout the year while those for Asian nations have tightened, meaning that Korean bonds have relative value,” said Yoon Hee-sung, treasurer at Kexim, Korea’s biggest issuer of offshore bonds. “With Kim Jong Un disappearing from the headlines recently, some investors may consider the widening in Korean debt a buying opportunity given that actual war is highly unlikely.”