THE global market volatility is not a hindrance at all for a high quality credit such as the Export-Import Bank of Korea (Kexim) to raise capital at competitive pricing. At a time when the US dollar bond market was choppy, it turned to other markets for its first offshore fund raising for 2018.

On February 12, Kexim, one of Asia’s most frequent bond issuers, priced a five-year CHF350 million (US$372 million) offering with a coupon of 0.253%. The deal also represented the first public bond transaction for Kexim handled by its new treasurer Jin-kyun Lee, who took over from Hee-sung Yoon following the latter’s appointment as executive director.

“Since we issued our last US dollar global bond in November 2017, we have been actively monitoring the non-US dollar bond markets from the start of this year,” Lee explains to The Asset. “Under the solid demand for Korean paper and the favourable swap conditions, we concluded that the CHF bond market would be the right choice among the non-US dollar currencies for multiple reasons, including currency diversification purposes and pricing perspectives.”

The CHF bond documentation process, as Lee points out, is relatively simple and typically only starts once the transaction is priced and launched. Because of this, Kexim was able to move very quickly and capture the right timing to issue the CHF bonds.

At a coupon of 0.253%, the pricing roughly swaps into US dollar three-month Libor plus low 70bp area, which was about 2-3bp inside Kexim’s US dollar secondary levels.

“Given we are assuming no new issue premium for bond new issuance, the estimate is rather conservative,” says Lee. “By tapping the CHF bond market, we ended up enjoying a pricing that is slightly inside our existing US dollar curve, while further defining our credit curve in this important niche market.”

In deciding to access the CHF bond market, Lee notes the US treasuries recently were back to levels not seen since 2014, turning the global markets choppy across all asset classes. However, the CHF bond market remained relatively resilient as CHF high grade credits remained almost unchanged despite the global market volatility.

“We are always open to monitor and strategically approach other currency markets as well as US dollar, especially when the US market is volatile like these days, also taking into account the on-going geopolitical tension on the Korea peninsula,” says Lee. “Indeed, the CHF bond market again proved to be a safe haven for borrowers during volatile market environment with attractive volume and price combinations.”

In executing the deal, Kexim did not undertake a roadshow considering that it already met investors in Switzerland in June 2017 when it issued a CHF250 million bond. “Also, we note that those investors now have keen interests in Korean credits as geopolitical concerns have eased on the back of the Pyeongchang Winter Olympic Games and a bilateral currency swap deal between two central banks, Bank of Korea and Swiss National Bank,” adds Lee.

With the success of this transaction, Kexim plans to visit investors in Switzerland regularly, to position its credit more favourably in this important market.

For 2018, Kexim is targeting to raise a total of US$8 billion equivalent in foreign currency funds. Lee says: “As our foreign currency funding strategies remain unchanged, we plan to engage in bond offerings in multiple currency markets via public offerings and private placements. Bank loans will take up a proportion of our foreign currency funding activities.”

The foreign currency fund raising represented a drop of US$2.5 billion from 2017 given Kexim’s redemption profile this year. Apart from the US$8 billion funding in foreign currency, it will also raise 11 trillion won (US$10.24 billion) for domestic use by Korean corporates.

In its fund raising exercise, competitive pricing is the most important consideration for Kexim. Lee explains: “As we have already set up our US dollar secondaries across multiple tenors, we closely monitor the market to take advantage of pricing opportunities and build another benchmark which other Korean issuers could refer to.”

Despite the unfavourable basis swap situation, the euro and the Japanese yen bond markets are also always monitored given the width and depth of liquidity of the markets. If and when Kexim encounters opportunities to issue bonds and maintain the currencies for its foreign currency asset liability management (ALM) purposes, it would be easier for the bank to tap those markets.

“We will keep monitoring some niche currency markets in the first quarter this year. We are more likely to visit the US dollar market afterward,” adds Lee.

For its fund raising strategy in the G3 bond market this year, Lee notes the bond primary market has also been showing a weakened tone across different credit classes amid a recent global sell-off in equities caused by valuation concerns. Investors seem to become a bit more sensitive to avoid volatility.

“Obviously, we are quite concerned about the unexpected acceleration in interest rate hike, given the sudden rises in the US dollar 10-year bond yield seem to incur uncertainties across assets and credit spreads as well,” says Lee. “The speed of the US dollar rate hike and the difference between rate hikes of the US Federal Reserve and Bank of Korea is also a concern.”

He adds: “Capturing the right market window for our bond issuances is always challenging. Given the current volatile market backdrop, headwinds in front of frequent issuers such as Kexim look very strong and severe.”