Korea Housing Finance Corporation (KHFC), the government-owned entity with a policy role to facilitate supply of housing finance, priced its second EUR Covered Bonds on June 11,  which follows their highly successful debut issuance in the euro market in October 2018. The transaction is KHFC’s first-ever “AAA” rated statutory covered bonds and marks the first-ever EUR AAA bond offering out of Korea.

Following a comprehensive roadshow in Europe, KHFC announced its EUR 5-year AAA Social Covered Bond transaction with IPT of EUR MS+35 bps area just after European markets opened on June 11.

The transaction quickly gained strong momentum with sizeable orders from high-quality central bank investors and SSA names as well as mega-size AMs which led to the order book reaching1.5 billion euros (US$1.71 billion) within two hours by 10:30 a.m. London time. The healthy order book allowed KHFC to revise price guidance down to EUR MS+30bps area and eventually, KHFC was able to price its 5-year EUR Covered Bonds at MS+25bps (Coupon of 0.100% and Issue Price of 99.965%).

The final order book stood at 1.37 billion euros across 78 accounts at reoffer. By geography, Europe accounted for 86% of the allocation while Asian investors were allocated 13% of the covered bonds. KHFC’s order book was characterized by significant demand from European CBs and SSAs along with a well-diversified investor base within Europe with participation from 14 different European countries and also featured a well-balanced breakdown by investor type as 32% were allocated to AM/FM, 25% to banks and 36% to central banks.

The 2.74x oversubscription while tightening 10 bps from IPT proves European investors’ robust interest and understanding in the unique credit of KHFC’s AAA Social Covered Bonds. KHFC’s Social Covered Bonds attracted not only traditional covered bond investors but also SRI investors appreciating KHFC’s explicit focus on promoting housing welfare. KHFC’s second successful issuance under their Social Financing Framework reflects investors’ recognition of KHFC’s credibility in its contribution to realizing social values including stable supply of housing finance to the underprivileged population.

While having issued 7 Covered Bonds since 2010, KHFC completed a huge step, obtaining a AAA rating from S&P and the successful application of the ECBC Covered Bond label to further demonstrate legal and structural stability and transparency of the covered bonds and strengthen the relationship with covered bond investors.

The joint bookrunners for this transaction are BNP Paribas, DBS, ING, and SG CIB.