Kookmin Bank prices tier 2 sustainability bonds

This bond offering generated a strong demand despite global uncertainty and promoted investor diversification, and whose proceeds are for green or social projects or both


South Korean lender Kookmin Bank on January 28 priced a Basel III-compliant tier 2 sustainability subordinated bond offering amounting to US$450 million.

The Reg S 10-year issue represented the bank's first US dollar-denominated tier 2 bond offering since 2001 when the new Kookmin Bank was launched. This was also the first ever US dollar denominated tier 2 bond arranged in a sustainability format in Korea. The bonds carried a coupon of 4.50% - or equivalent to a spread of 187.5bp over the US treasuries.

The issuance generated a strong investor demand despite the heightened market volatility due to global growth concerns and lingering uncertainty from the US-China trade war, the US government shutdown and issues surrounding Brexit.

The order book amounted to over US$1.7 billion from 110 accounts with 88% of the bonds distributed in Asia and 12% in Europe. By type of investors, asset and fund managers accounted for 73% of the paper, insurance companies and sovereign wealth funds 21%, banks 5%, and private banks and other investors 1%.

The offering has enabled Kookmin to secure an alternative source of financing for raising capital and achieved investor diversification, including socially responsible investors. Sustainability bonds are instruments where the proceeds will be exclusively applied to eligible environmental and/or social projects.

The principal on the notes, according to Moody's Investors Service which assigned a Baa1 rating on the issuance, will be fully written down in the event that the bank is designated as an "insolvent financial institution" by the Financial Services Commission or the Korea Deposit Insurance Corporation pursuant to the Act on the Structural Improvement of the Financial Industry.

The bonds were drawn under Kookmin's US$8 billion global medium-term note programme. The proceeds will be used to finance new loans or refinance existing loans which fall under one or more of the green eligible categories or social eligible categories, or both, as identified in Kookmin's sustainable financing framework developed in September 2018.

Citi, HSBC, Societe Generale CIB, Standard Chartered and UBS were the joint bookrunners and lead managers for the transaction, while KB Securities acted as a co-manager.

The bond offering was the second fund raising done by Kookmin in about two months, having priced a US$100 million covered bonds in December 2018. The two-year deal was priced at par, with an interest rate fixed at 3.409% per annum. The underlying pool consisted mainly of residential property mortgage loans located in Korea.

Oversea-Chinese Banking Corporation acted as the dealer for the transaction.


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29 Jan 2019


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