IFR Asia debt markets report, April 2009

Twice in the space of a year, Export-Import Bank of Korea (Kexim) has launched landmark issues in the Malaysian ringgit bond markets – but they are landmarks for quite different reasons.

The first, in March 2008, was a M$1 billion sale of five- and 10-year notes. Given the slew of similar deals that followed it, it’s hard now to recall what a tough sell this must have been at the time. “To do a billion from a country that has not issued here before – it was not a walk in the park,” says Chay Wai Leong, managing director of RHB Investment Bank, which joint led the deal with CIMB and OCBC. “Many investors knew very little about the bank or Korea itself. Then there was the problem of the swap market to deal with. A lot of things had to be right for the deal to be successful. I can’t even explain in a few sentences the level of difficulty it took: an unknown name, swimming against the swap market.”

The swap market challenge – picking a moment when the economics of swapping ringgit into dollars and then on again into won still left the transaction commercially viable – would become more and more of a problem as the year went on. Instead, the novelty of a Korean issuer to a Malaysian investor base was arguably the bigger challenge to overcome, with a major knock-on effect on later deals. “It was very important for us to do it right,” Chay says.

Kexim is of course a major issuer in world markets and its arrival in Malaysia was welcomed as something of an endorsement. “They have done fund raising all around the world: Mexico, Turkey, Hong Kong, Singapore, and all the major currencies,” says Chay.

This first deal priced at Malaysia government bonds plus 55bp and 80bp on the five and 10-year deals respectively, pricing that looks very good now. The coupons were 4.08% and 4.5%. It went to about 40 onshore accounts, and provided Kexim not only with diversity of funds but also attractive pricing for the time. It also opened the floodgates: within a matter of weeks Industrial Bank of Korea, Woori Bank and Hyundai Capital had all also issued in ringgit.

The deal was the first hit out of a M$3 billion MTN funding programme, and one year on Kexim tapped it again, to widespread surprise. Chay says the second deal came about partly because of an update program. “It was very responsible of them,” he says. “They came back to update investors of Kexim and brought along a representative from the Ministry of Finance to update them on the Korean economy and financial markets. Because of that, demand was generated.”

That was remarkable given the scrutiny of Korea at the time – perhaps the Asian market most directly hit by the credit crunch. “There were still a lot of questions being asked of Korea, the economic numbers were all very bleak. The world was writing about Korea every week. Against that backdrop, how do you do a Korean deal?”

RHB and financial advisor Merrill Lynch targeted investor demand precisely, raising RM220 million in a three-year deal since that was what the market wanted. It priced at 4.75%, a spread of 227bp over the three year ringgit interest rate swaps and the equivalent of mid-swap of 395bp over Libor in US dollar terms – once again, effective funding.

Competitors were a little surprised to see the deal go through, particularly since it was widely accepted that swap rates had made such deals prohibitive (in fact, the lack of demand for these swaps meant the bank got a number of offers, according to Chay). But it got done, and not just through a bank relationship. “People have asked if it all ended up on our books,” says Chay. “Not a single dollar is on our book. There was a pension fund, banks, insurance companies.”

What’s not clear is if Kexim will once again have a galvanising effect on the markets, bringing other Korean issuers in its wake. Hana Bank is believed to be looking closely at a deal, but it is unlikely Malaysia will see quite the same slew of Korean bank names in its markets as was the case last year.

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