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Credit where credit's due for KDB

Issuer: Korea Development Bank

Amount: $300 million

Issue type: Floating rate note

Launched: June 16

Lead manager: Goldman Sachs

Great things often come from small things. Such was the case last month when Korea Development Bank (KDB) issued an innovative $300 million floating rate note that grew out of a small MTN. The bonds offered investors the equivalent of disaster insurance should Korea's premier borrower, and Euromoney's recently nominated best Asian borrower, get downgraded.

The five-year bonds can be redeemed early if the borrower is downgraded below A3 by Moody's or below A- by Standard & Poor's. The borrower is currently rated A1/ AA-, the equivalent of the South Korean government. Credit has become a key issue for Korean borrowers following the collapse of the Hanbo conglomerate in January. This was particularly detrimental to the banking sector which did not emerge from the scandal with an image that suggested prudent lending. In addition, foreign investors have been concerned by the slowdown in economic growth, falling export orders and worries about the country's competitiveness.

While KDB has continued to access the international markets in recent months with the likes of an inflation-linked yankee, and a Korean debut in the sterling floater market, it has become increasingly aware of growing investor worries about its credit.

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