A $500m no-grow five and a half year Korea Housing Finance Corporation covered bond was three times oversubscribed heading into the US open today (Tuesday), with strong reverse enquiry providing the necessary comfort to launch the deal, said a lead banker.

Standard Chartered Marathon, Seoul - Mortgages originated by the bank back KHFC's new issue

Leads Citi, Nomura and Standard Chartered had collected more than $1.5bn of orders for the $500m (Eu383m) deal by around 1330 CET today, and were due to keep the order books open for another couple of hours to allow US accounts to participate, according to a syndicate banker on the deal.

Guidance had by then been revised from 110bp over Treasuries to 100bp-105bp over, with pricing at the tight end of this range expected, he added. At 100bp over Treasuries the spread over mid-swaps would be roughly equivalent to 68bp over, some 7bp-10bp tighter than senior unsecured levels for Export-Import Bank of Korea (Kexim), he said.

Today’s deal is KHFC’s third cross-border covered bond, but the syndicate official said that the outstanding issues – 4.125% July 2015s and 3.5% July 2016s – are rated one notch lower and therefore not necessarily the best comparables.

Moody’s in August upgraded KHFC’s outstanding covered bonds from Aa3 to Aa2 in August following an upgrade of the issuer from A1 to Aa3, noting that KHFC is committed to maintaining overcollateralisation of 19% for the covered bonds due 2015 and 18% for the covered bonds due 2016.

The rating agency on 7 February assigned a provisional Aa1 rating to KHFC’s targeted new issue, which it said is a single, standalone deal and not part of an issuance programme. It said that the issuer has committed to maintaining an asset percentage of 83.3%, which translates to overcollateralisation of around 20%.

The leads are “absolutely satisfied” with the way in which the KHFC deal is unfolding, said the lead syndicate banker, in particular given the pressure that the broader debt capital markets have come under as a result of the Italian elections. (See separate article here for more coverage on the market impact of the elections.)

The situation in Italy triggered some hesitation about whether or not to proceed with a deal, he said, but significant reverse enquiry from a roadshow gave the leads the comfort to open order books. The issuer finished a roadshow on Thursday.

KHFC is a government backed institution that issues covered bonds under a law governing the entity, with mortgage loans pooled from seven Korean banks eligible as collateral. For its latest issue, however, the cover pool will consist only of KHFC mortgage loans originated by Standard Chartered Bank Korea, according to a roadshow presentation.

The deal comes as Korea moves closer to passing covered bond legislation that would allow banks to issue on a standalone basis, with a draft law approved by the country’s cabinet at the end of January and parliamentary approval awaited.