KHFC social €1bn, SG green outcomes show mart on fire
KHFC today (Wednesday) sold the largest Korean euro benchmark yet, a €1bn five year social bond, while a second “positive impact” issue from SG echoed the success of compatriot CRH yesterday, with bankers noting issuers across the board can price flat to fair value in a market “as hot as can be”.
Korea Housing Finance Corporation attracted some €1.4bn of orders to its social bond following initial price thoughts of the high 20s over mid-swaps, while the order book for Société Générale SFH’s €1bn 10 year peaked above €3bn, allowing for pricing at 2bp over mid-swaps, after demand for a dual-tranche Caisse de Refinancement de l’Habitat (CRH) issue yesterday peaked above €6bn.
“In spite of the knee-jerk reaction of equity markets to the coronavirus, credit markets have been fine given the abundance of liquidity,” he said. “Meanwhile, there are not so many covered bonds around – we are already lagging last year’s record January supply – and so there is strong support for new issues – particularly as SSA valuations become more expensive.
“Name like KHFC that offer a pick-up are certainly in demand, but even core names can come at very tight levels.”
Korea Housing Finance Corporation (KHFC) teed up its new issue at the end of last week, following a roadshow, and this morning leads BNP Paribas, DBS, ING and SG went out with the IPTs of the high 20s before moving to the 25bp area and ultimately pricing the €1bn (KRW1.3tr, US$1.1bn) issue at 24bp over.
“With such an attractive headline spread, I’m not surprised KHFC went so well,” said a syndicate banker away from the leads.
Bankers at and away from the leads said the deal came flat to 1bp through fair value. A lead syndicate banker said he saw fair value at 25bp-26p over based on KHFC secondaries, although he noted that these are not very liquid.
“Taking out €1bn with general ease, they have cemented themselves as an established issuer now in euros,” he said. “The timing was ideal, coming in a market that’s as hot as can be.”
The social bond is the public sector issuer’s third, with its previous two having been €500m deals in each of the last two years, the first of which was the first Korean euro benchmark covered bond.
“Hopefully we will see more Koreans in euros,” added the lead banker.
After announcing its mandate yesterday (Tuesday), SG SFH leads Crédit Agricole, Danske, LBBW, Rabobank, Santander, SG and UniCredit opened books this morning with initial guidance of the 7bp over-mid-swaps area for the 10 year “positive impact” covered bond. After around an hour and 15 minutes the leads reported books above €2bn, excluding €125m JLM interest and, according to a lead syndicate banker, the Eurosystem CBPP3 order. The spread was fixed at 2bp and the size at €1bn on the back of books above €3bn, excluding €125m JLM interest, after around an hour and a half.
The lead syndicate banker said the pricing was roughly flat to fair value and the size was at the top end of the issuer’s targeted €750m-€1bn size range.
“It is a fantastic outcome for the issuer,” he said. “As a syndicate group, we didn’t really see that pricing coming yesterday – 3bp over was our base case, although we knew that if the book went stellar we could perhaps test 2bp, but it was a long shot.”
In spite of the fall in rates that has followed the coronavirus outbreak, the deal was priced at a positive yield, of 0.023%, and the lead banker said this boosted demand. Orders from “dark green” and “light green” accounts also helped, he added, although he said they did not drive demand, given the strong backdrop.
The deal is SG SFH’s second “positive impact” covered bond, the first having been a €1bn 10 year in July 2019, with proceeds earmarked for financing lending against energy efficient homes, that was the first green French covered bond.
In sub-benchmark supply, Sparkasse Pforzheim Calw sold a €250m eight year mortgage Pfandbrief that had been announced yesterday. Leads Erste and LBBW opened books with guidance of the 5bp area, +/-2bp, will price in range, and set pricing at 3bp on the back of over €350m of orders, excluding JLMs, with €330m of that ultimately good at re-offer.
A lead syndicate banker said that given the less liquid nature of sub-benchmarks and the premium they pay over benchmarks, calculating fair value was not straightforward, but he estimated the deal came with a new issue premium of zero to 1bp.
“The book is a good outcome for the issuer,” he said, “who tends to be opportunistic with these trades. We knew 3bp was their wish and we set the 5bp+/-2bp, WPIR, guidance to be transparent from the start.”