will be sustained over the next 12 to 18
months.
XINJIANG ZHONGTAI MEETS INVESTORSChemicals producer XINJIANG ZHONGTAI GROUP is
SETûTOûHOLDûlXEDûINCOMEûINVESTORûMEETINGSûINû
Hong Kong and Singapore this week through
CICC, according to a market source.
The company will meet investors in Hong
Kong on October 31 and November 1 and in
Singapore on November 2, according to the
source.
The company is a state-owned unit of the
Xinjiang Uyghur Autonomous Region
provincial government.XIANGJIANG GROUP EYES BOND ISSUEHUNAN XIANGJIANG NEW AREA DEVELOPMENT GROUP,
rated Baa3/BBB (Moody’s/Fitch), has hired
three banks for a proposed offering of US
dollar senior bonds.
Standard Chartered Bank and CEB
International are joint global coordinators, as
well as joint bookrunners and joint leadmanagers with Industrial Bank Hong Kong
branch.
The company, a local government
lNANCIALûVEHICLEûOFû#HANGSHAûMUNICIPALû
government, started to meet investors in
Singapore and Hong Kong on Friday.
The proposed Reg S bonds have expected
ratings of Baa3/BBB (Moody’s/Fitch), in line
with the issuer.
The issuer’s main mandate is to promote
the development of the Xiangjiang New
Area of Changsha city in Hunan province
through primary land development,KHFC makes euro covered debut
SOUTH KOREA Yield pick-up helps housing company negotiate volatile marketKOREA HOUSING FINANCE CORPORATION, rated Aa2/
AA– (Moody’s/Fitch), issued its first euro covered
bond, detouring from its usual US dollar route
after it got stronger feedback from European
investors in a soft market.
The €500m five-year covered bond priced at
mid-swaps plus 40bp, drawing final orders of
over €1.65bn.
At three times covered, the transaction
was deemed a success given that this was the
South Korean state entity’s first foray in euros,
and also the first for a South Korean issuer in
that currency for covered bonds. KHFC is solely
responsible for implementing the government’s
housing finance policies.
The deal structure had the traditional,
familiar elements sought by European
investors, including a dual-recourse structure
and asset segregation. It falls under the KHFC
Act, a regulatory framework that governs the
government entity’s covered bonds.
“It was a big move to deviate from the US
dollar covered bond market, where they have
traditionally issued for years,” said another
banker on the deal. “We were able to find out
during the roadshow that Europe is indeed the
deepest market for covered bonds, and investors
will appreciate the commitment to building a
curve. If they do this correctly, this market will be
available.”REGULAR EURO ISSUANCE
Shin Seung Yong, KHFC’s securitisation planning
team head, told IFR that the issuer plans to sell
covered bonds on a regular basis in the euro
market from next year.
“US investors are familiar with Korean names,
which are frequent issuers in US dollars. Korea
also issues sovereign bonds in dollars,” said
Shin. “But European investors liked that we are a
stable jurisdiction and can offer a structure that
is similar to those issued at home. Liquidity is
also better. We’re hoping that this deal will set a
good benchmark for more issuance from Korea.”“We were surprised to see that we attracted
more covered bond investors in our deal than
similar deals recently.”
The transaction is also the first Social covered
bond from Asia. In Europe, there is a lot of
overlap between demand for Social bonds and
demand for covered bonds, so the deal ticked a
lot of boxes for investors, another banker on the
deal said.
KHFC helps provide affordable housing for
low-income families and socially underprivileged
households.
Its role has become crucial amid soaring
home prices in the country’s capital of Seoul,
which prompted President Moon Jae-in to
implement multiple rounds of cooling measures.WEAK MARKET
Wary of ongoing market volatility, KHFC spent a
week gathering IOIs before announcing the deal
at mid-swaps plus 50bp area on Wednesday.
Comparables included the Singaporean
covered bonds from DBS and UOB, which were
trading in the mid-swaps plus 10bp–15bp area,
and euro bonds from South Korean state-owned
banks such as Kexim and KDB, which were
around the 30bp area.
“It came tighter than we would have done a
dollar deal on a swaps basis, but it was mainly
because they want to come back to the euro
market – there’s not really a covered bond buyer
base in dollars, it’s a bit hit and miss,” said a
lead.
“And this deal will trade much tighter quite
quickly.”
The spread on offer is at the higher end
of the euro covered bond spectrum – only
Italian, Spanish, Greek and Polish paper have
priced wider this year. Singapore’s UOB priced
a €500m September 2023 (Aaa/NR/AAA)
considerably tighter, at swaps plus 7bp, in
September.
That is partly down to the KHFC bond’s
expected rating of Aa1 by Moody’s, as well asmaller investor pool than for more established
borrowers. Singaporean banks, by contrast, have
become relatively frequent issuers since their
first euro covered trade in 2016.
KHFC’s Shin recognised the merits of frequent
issuance, underscoring his resolve to come to
the euro market again to help tighten pricing in
the future.
KHFC’s covered rating is higher than those of
the issuer and the sovereign, but lower than the
Triple A covered bond ratings of DBS, OCBC and
UOB. A banker on the deal explained that KHFC’s
latest covered bond has a hard-bullet structure,
under which the principal is due after five years.
That contrasts with some other jurisdictions
such as the UK, Canada, Singapore and
Australia, in which Triple A ratings are made
possible by soft-bullet structures that give the
issuer an additional 12 months after the maturity
date to pay back the bonds.
South Korea’s Kookmin Bank was able to
get a Triple A rating for a US$500m five-year
covered bond in 2015, but the commercial bank
at the time included mechanisms that insulated
offshore swap counterparty cashflows from any
sovereign risks.
EMEA accounted for 90% of the KHFC deal,
with the remainder going to Asian investors.
Asset and fund managers bought 60% of the
notes, banks took 24% and the rest went to
central banks.
KHFC’s Social covered bond framework
was established to raise funding to finance or
refinance KHFC’s mortgage loan products and
provide stable and long-term housing finance.
The framework complies with the ICMA Social
Bond Principles and has been reviewed by
Sustainalytics.
The 144A/Reg S and 3(c)(7) bonds will be
backed by South Korean residential mortgages.
BNP Paribas, DBS Bank, ING and Societe
Generale were joint bookrunners and joint lead
managers for the Social covered bond offering.
Frances Yoon