South Korean lender Shinhan Bank on September 13 successfully priced a US$350 million Basel III-compliant tier 2 subordinated notes deal, representing the first such offering from Korea this year.

The Reg S/144A 10-year deal was priced at 99.111% with a coupon of 3.75% to offer a yield of 3.858%. This represented a spread of 167.5bp over US treasuries, or at the tight end of the final price guidance of the 170bp area (+/- 2.5bp).

On a spread basis, this is the tightest tier 2 spread in the world year-to-date, a banker familiar with the deal points out. The bonds held well in the secondary market and were quoted at around re-offer in the late morning of September 14.

In executing the transaction, Shinhan held a roadshow in Asia beginning August 28, and in Europe and the US commencing on September 6. The bank announced the transaction during Asia morning hours on September 13 with an initial price guidance of 190bp over US treasuries.

In terms of relative value, Shinhan’s outstanding March 2016 tier 2 bonds were trading on September 13 at a G-spread of 164bp. Pricing for some curve extension, the banker argues that the new bonds will come around the level where it was printed.

The transaction generated a total order book of US$1.1 billion from 81 accounts with 64% of the paper allocated in Asia, 20% in the US and 16% in EMEA. By type of investors, asset managers drove the deal as they accounted for 64%, while insurance companies took 20%, banks and private banks 11%, and sovereign wealth funds 5%.

The bonds are drawn from Shinhan’s US$6 billion global medium-term note programme and the proceeds will be used for general corporate purposes.

Bank of America Merrill Lynch, BNP Paribas, HSBC and MUFG Securities are the joint bookrunners of the transactions as well as joint lead managers along with Shinhan Asia and Shinhan Investment Corporation.

Pursuant to the Act on the Structural Improvement of the Financial Industry of Korea, the bonds will be written off in full and permanently upon the designation of the issuer as an insolvent financial institution.

This is the second time Shinhan accessed the US dollar bond market this year, having priced a five-year US$500 million senior offering in March. That deal, which attracted a total demand of US$1.9 billion from 142 accounts, had a coupon of 2.875% to offer a yield of 2.967%.

Photo: Kaniwari/Wikipedia