By Chelsea Wallis
Sept. 26, 2012 – KangaNews Online
Leads on the two most recent Korean Kangaroo deals say there is a continuing appetite for Korean credit in Australian dollars. Like the other three Korean names to appear in the Australian market in 2012, Shinhan Bank (Shinhan) and Korea Gas Corporatio (KoGas) attracted strong support in Asia. But deal leads say the names are garnering the attention of local investors as well.
Confidence in the Korean economy is evident in ratings upgrades for the sovereign to A+ from A by Standard and Poor’s on September 14, to Aa3 from A1 by Moody’s on August 27, and to AA- from A+ by Fitch Ratings September 6.
An increasing number of domestic investors appear to be taking advantage of the diversity offered by new names in the Australian market, though international buyers continue to make up the bulk of Korean Kangaroo books.
“Domestic investors continue to look for diversification for their portfolios and they are participating in Korean-origin transactions on a selective basis,” explains Rod Everitt, Sydney-based head of Australian dollar syndicate at Shinhan and KoGas lead, Deutsche Bank. “The names are good quality and well rated, provide a reasonable spread to pick up, and have been well supported in recent times,” he says.
Paul white, global head of debt syndicate at ANZ in Sydney confirms the local real-money investor base has responded favourably to selected Korean issuers in particular. “We’ve led all fie Korean transactions this year and it’s fair to say – particularly with regard to the recent KoGas and Kexim [Export-Import Bank of Korea] trades – that domestic investors view Korean credits as an attractive asset in terms of credit quality, liquidity, diversification and secondary performance.”
Popularity continues into the secondary markets as spreads on Korean deals issued in 2012 have tended to tighten – which White attributes in part to their ability to attract further demand in the secondary market. He observes: “Korea is seen as a positive story currently given the underlying strength of the economy and upward rating revisions from the various rating agencies. Spreads have tightened considerably but given consistent secondary demand from both Asian and European accounts, they look as if they’re going to tighten further.”
Korean Books
Shinhan returned to the Australian dollar market for the first time since its debut issue in 2007 – a A$400 million, dual-tranche deal that matured in 2010. The deal represents a step forward in Korean credit terms: as a commercial bank it does not have the same status as credits such as KoGas as a government-owned corporate. Nonetheless, Shinhan’s leads say its book was oversubscribed at A$550 million (US$571.3 million) and closed at a final volume of A$250 million with 64 accounts participating.
Like the KoGas deal, Shinhan also tightened from its initial pricing guidance – from 170 basis points over semi-quarterly swap to 160 basis points at pricing. This tightening in guidance was only achievable because of the strength and size of the order book, says Andrew Koczanowski, Sydney-based head of Australian dollar syndicate at joint lead HSBC.
The Asian region was the dominant source of investors with 54 per cent of the allocated deal, followed by Australia at 33 per cent and Europe at 13 per cent. Koczanowski says the deal was only launched late afternoon in Sydney and had circa A$400 million in the book by the time markets re-opened in Sydney on the day following the launch.
“In the end, there was in excess of A$150 million of Australian bids that came in, post-European close,” he adds.
Leads confirmed fund managers as the largest investor base at 45 per cent of the Shinhan deal, with Asian commercial banks picking up 37 per cent and private banks with 15 per cent.
KoGas was even more heavily oversubscribed with A$1 billion in the book for a deal capped at A$300 million, according to leads. Like Shinhan, offshore investors were dominant in the deal along with a strong showing from real-money investors, allowing for tightening from its initial 170 basis points over semi-quarterly swap to 155 basis points upon pricing.
“A larger percentage of investors originated in Asia with solid participation from European and Australian domestic names,” explains Deutsche Bank’s Everitt.
Wider appetite
Leads also suggest the success of Korean names is a result of increased stability in the Kangaroo market. New and returning names have begun to pop up on screen, including: Shinhan after a five-year hiatus, BP Capital Markets, which issued the first true corporate Kangaroo deal since 2006, and the Metropolitan Life Global Funding debut.
“The market has struggled for diversification for a number of years – this has been well documented,” O’Hara says. He explains: “The deals coming through in the primary market include more interesting names we haven’t seen in some time, which is aiding demand. The market is generally in better shape – there’s some momentum, so I think all those factors are aiding the execution of these deals at the moment.”
It appears the bid in credit is making a strong comeback given the global backdrop of risk-on, according to Everitt, making access to the Kangaroo market easier not only for new corporates, but for financial institutions as well.
“We’ve seen a few banks already and I wouldn’t be surprised if a few more take another look at the market,” he says.