Kookmin issued its debut euro covered bond and first in sustainability format today (Wednesday), a €500m no-grow five year that attracted the most demand of a Korean covered bond, over €2.2bn, with bankers citing its ESG nature and legislative framework as broadening its appeal versus a recent KHFC trade.

Kookmin Bank’s mandate was announced on Tuesday of last week (30 June) and a series of investor calls held from Wednesday to Friday. The deal is its first euro benchmark covered bond, following prior dollar issuance, and first covered bond in sustainability format, although it has issued in other formats off the same framework.

This (Wednesday) morning, leads BNP Paribas, Citi, Crédit Agricole, JP Morgan, HSBC and SG went out with initial price thoughts of the high 40s for a €500m no-grow five year covered bond. After around an hour, books were reported as being over €1bn, excluding joint lead manager interest, and after around an hour and 55 minutes, guidance was revised to the 45bp area on the back of over €1.6bn of demand, excluding JLM interest. The deal was ultimately priced at 40bp on the back of over €2.2bn of demand, including €75m JLM interest.

A syndicate banker away from the leads said the outcome was a strong result, citing the move from the high 40s IPTs to the 40bp re-offer.

“The sustainability booster definitely helped,” she said, “and given one cannot really get medium term assets at a double-digit spread or with a positive coupon, this was another selling point.”

On Monday of last week, compatriot Korea Housing Finance Corporation (KHFC) attracted €650m-plus of orders to a €500m no-grow five year social bond priced at 35bp.

Bankers said that although higher rated KHFC (Aa2/AA/AA- by Moody’s, S&P and Fitch) achieved tighter pricing, its unique covered bond structure does not have such wide appeal as the legislative framework used by Kookmin (Aa3/A+/A) (covered bonds from each of the issuers are triple-A rated).

“It makes a very big difference, because the second you have a legislative framework, you have a much broader investor base that can buy it,” said the syndicate banker away from the leads.

A lead banker echoed this, noting that KHFC is the only previous South Korean name to have issued in the euro market.

“If you can only buy legislative covered bonds, this is probably your first chance to buy into the Korean market,” he said.

The lead banker said a high degree of price discovery was necessary given that the deal is Kookmin’s euro debut, but that based on where a new five year KHFC bond would be priced, fair value for today’s deal was around 40bp, meaning that the issuer paid minimal to zero new issue premium.

Kookmin’s deal was priced with a marginally positive yield of 0.052%, which the lead banker cited as another factor in the level of demand it enjoyed.

“Some investors we had today didn’t show up at KHFC because they priced with a negative yield,” he said, “especially the asset management community, who were significant in Kookmin’s deal.”

Another lead syndicate banker said the South Korean issuer’s sensible approach to launching the debut sustainability issue had contributed to the result.

“They announced it a week ago and did a series of calls and marketing, garnered feedback, and made sure they were all set up nicely before moving into the marketplace,” he said.

Capping the deal at €500m and the sustainability label led to swift momentum in the bookbuilding, he added, contributing to the “really tasty” €2.2bn-plus book.