Korea Housing Finance Corporation priced its third and highest rated dollar covered bond yesterday (Tuesday), a well received $500m no-grow five and a half year deal that was helped by a lack of competing supply, investor work, and upcoming covered bond legislation in Korea, according to a lead banker.

The deal was priced at 100bp over US Treasuries after leads Citi, Nomura and Standard Chartered Bank collecting $1.7bn of orders from 91 accounts for the $500m (Eu383m) deal. Guidance had initially been set at 110bp over before being revised to 100bp-105bp over. A lead syndicate banker put the mid-swaps equivalent level at 71.25bp over.

A recent Export-Import Bank of Korea (Kexim) deal served as the main reference point for many accounts, he said, although secondary market levels for issuers such as Korea Development Bank 1.5% 2018 senior unsecured bonds and Commonwealth Bank of Australia 2.25% 2017 covered bonds also influenced the leads’ thinking about pricing.

Kexim priced a $500m five year senior unsecured issue at 95bp over Treasuries last Wednesday (20 February). The aforementioned KDB bonds were trading at around 90bp over and the CBA covered bonds at 34bp over.

Like KHFC, Kexim and KDB are government owned, although KDB is due to be privatised.

Asia took 45%, Europe 30%, and the US 25%. Funds were allocated 48%, banks 36%, central banks 8%, insurance companies 7%, and private banks and others 1%.

The order books stood at around $1.5bn heading into the US open yesterday and although they only then grew to $1.7bn the lead syndicate official said US accounts took a “healthy” share, with many larger US accounts having passed orders to colleagues in Asia to ensure their participation in the deal.

KHFC’s deal was helped by it having been announced as a no-grow from the outset, said the lead syndicate banker, and by the issuer having gone on a roadshow.

“There was a thoughtful amount of investor work before the deal,” he said, also referring to a “discrete trust” issuance structure that enabled documentation to be in place to allow accounts to carry out analysis of the deal in advance.

“Accounts knew exactly what they were going to buy,” he added.

KHFC’s latest deal is a single, standalone issuance and not part of an issuance programme.

The roadshow met with a “decent response” from investors, according to the syndicate official on the deal, with the expected passage of covered bond legislation in South Korea also having a positive impact.

“People are impressed with the fact that legislation is coming,” he said, “and that there will be more liquidity in the product. When other people start using a product it feels more on-the-run.”

Korea’s cabinet approved draft covered bond legislation at the end of January, with parliamentary approval the next step outstanding. KHFC is the second Korean covered bond issuer, with Kookmin Bank also having launched a deal, but Kookmin’s issuance is on a contractual basis, with KHFC’s taking place under dedicated legislation governing the government institution.

KHFC’s deal was launched against a shaky European market backdrop due to a general election in Italy failing to turn out a clear majority for any party in both houses of parliament, while in the US trades executed on Monday opened wider yesterday morning in response to VIX volatility index numbers.

“The fact that this was able to be announced shows the calibre of the trade,” said a lead syndicate official of KHFC’s deal. “But it’s a double-A name so it should have certainty of execution.”

A lack of competing supply in the US market yesterday also supported the transaction, he added.

The deal is KHFC’s third cross-border covered bond, and has been assigned a provisional Aa1 rating by Moody’s, which is one notch higher than the rating of its other covered bonds.