Market praise for Korean Development Bank has, as time has passed, become louder and louder. Most bankers agree that KDB has emerged as one of the most market-savvy borrowers in the region, knowing when and how to make issues. Since the Asian financial crisis, it has been the sovereign benchmark for Korea, a responsibility it has handled well, with all its deals completed successfully and well received by the market.
It has fairly set borrowing requirements and programmes in place. All bankers agree that these are well managed with a sensible degree of diversity between the loan market or the bond market as well as between different groups of institutional investors in the bond markets. The past 12 months was a clear example of such a strategy. In 2002 it raised just under $2 billion. Most of the capital-raising was done in the second half of the year – it was a sensible course to take as it was waiting to take advantage of its expected upgrade. In July there was a $300 million samurai bond and in September a $400 million syndicated loan. These two deals were followed by a $750 million global offering in November, and in February this year the bank successfully launched its $500 million reopening of its 2007 and 2012 bonds. In addition $300 million was raised through private placements off its MTN programme.
Sophisticated global The deal that rightly receives most attention and proves KDB’s credentials as a sophisticated borrower is its $750 million twin-tranche global. Although the transaction was, as ever, well received, it also went some way to proving that KDB isn’t the inflexible and arrogant borrower that many in the market were beginning to perceive it to be. In fact KDB seems to have gone out of its way to ditch such a tag by carefully listening to the market and its bankers.
Originally the bank had wanted to do a three-tranche, one-year, five-year and 10-year deal. However, its advisers, Barclays Capital, CSFB and JPMorgan, after listening to investors, recommended pushing the one-year into the five-year, reducing the five-year from $500 million to $300 million and increasing the 10-year from $250 million to $450 million. KDB was a little reluctant at first, not really believing what it was being told. But after seeing the book-build process itself it showed a certain amount of bravery and agreed.
The 10-year tranche was to be the first long-dated benchmark out of Korea since the Asian crisis. But the pre-launch nerves weren’t necessary. The deal flew out of the door with a final order book of $2.6 billion. In addition, and perhaps more important, by deciding to change the structure of the deal, KDB found the transaction actively supported by the US investor base. Almost 50% of the five-year and 10-year tranches went to US investors in one of the few Asian deals where bids from outside the region outnumbered those in Asia. As one banker now says of KDB: “It is much less rigid now. But to a point. So long as all its objectives are met and you can give it competitively priced and successful execution it will listen and be flexible. It is also now more willing to accommodate investors.”
Its pre-eminence as Korea’s most important borrower is, however, coming under pressure this year. The Republic of Korea is expected to do a deal soon that will inevitably affect it. “The challenge for KDB is that it will have to price deals wider than the ROK benchmark. It’s a key issue for it and it may not like it at all,” says a banker. Observers will have to wait and see if this savvy issuer gets knocked off balance.
