THE government-controlled Korea Housing Finance Corporation (KHFC) on October 25 priced its latest covered bond offering amounting to US$500 million as it took advantage of a favourable market issuance window.

The Reg S/144A five-year deal was priced at 99.715% with a coupon of 3%, representing a spread of 100bp over US treasuries. This was at the tight end of the final price guidance of between of between 100bp and 105bp, and 25bp inside the initial guidance of the 125bp area.

This was the sixth US dollar benchmark covered bond issuance from KHFC since 2010. It last tapped the market in early October 2016 with a similar five-year US$500 million transaction with a coupon of 2% and a spread of 85bp over US treasuries.

On the back of a successful roadshow held in Hong Kong, Singapore, Frankfurt, London, New York and Chicago the week before the deal pricing, the arrangers announced the transaction in the morning of October 25, Hong Kong time, with an initial price guidance of the 125bp area over US treasuries.

The deal garnered a strong traction among the investors and the books were in excess of US$1 billion at the London opening, which allowed for the price guidance to be revised to between 100bp and 105bp by London mid-morning. The demand peaked at over US$1.2 billion via 83 accounts prior to re-offer and it was finally launched at a spread of 100bp in the morning New York time with a final order book amounting to US$1 billion from 62 accounts.

In executing the transaction, KHFC took advantage of a favourable market environment and the success of the US$2 billion three-tranche offering by one of Korea’s policy banks, Export-Import Bank of Korea (Kexim), which was priced the day before on October 24.

Achieving a price compression of 25bp from the initial guidance to final pricing, KHFC did not pay any new issue concession and matched the same pricing that Kexim achieved on its five-year fixed rate tranche at 100bp.

In terms of geographic distribution, 47% of the bonds were sold in Asia, 27% in the US and 26% in EMEA. By type of investors, fund and asset managers accounted for 57%, banks 27%, central banks and sovereign wealth funds 13% and private banks 3%.

BNP Paribas, Citi, ING and Standard Chartered acted as the joint bookrunners for the transaction.

KHFC’s primary business consists of securitization of mortgage loans, which it purchases from Korean mortgage lenders in order to facilitate the supply of housing finance on a long-term and stable basis.

Under Article 31 of the KHFC Act, it is authorized to issue covered bonds – or locally called mortgage-backed bonds. Unlike the traditional mortgage-backed securities, these are dual recourse obligations which represent both (1) a senior claim on the general assets of KHFC and (2) a priority claim on the residential mortgage loans that are designed to secure payment of the mortgage-backed bonds, and which are managed separately from the other assets of KHFC.