Korea Development Bank (KDB) is adapting to the impending transition from Libor to the new interest rate benchmark as it priced on March 2 its latest fund raising linked to secured overnight financing rate (Sofr).
The Korean policy bank printed a three-tranche SEC-registered deal totalling US$1.2 billion. It comprised of a three-year floating rate tranche amounting to US$300 million, which was priced at par with an interest rate of 25bp over Sofr. Sold as a green bond, this was the first public Sofr transaction out of Korea and the first public SEC-registered Sofr-linked bond offered out of Asia.
The second tranche was a three-year fixed rate bond amounting to US$400 million, which was priced at 99.827% with an interest rate of 0.40% per annum. This was equivalent to a spread of 20bp over the US treasuries, which was in line with the final price guidance and 25bp tighter than the initial guidance of 45bp area.
The third tranche was a 5.5-year fixed rate bond amounting to US$500 million, which was priced at 99.829% with an interest rate of 1% per annum. This represented a spread of 35bp over the US treasuries, which was also in line with the final price guidance and 25bp inside the initial price range of 60bp area.
The fixed rate tranches recorded all-time low issue spreads achieved by a Korean policy bank for US dollar fixed rate public bonds offerings.
In anticipation of Libor termination at the end of 2021 and subsequent movements for transition to alternative risk-free rates, KDB had set up infrastructure for such floating-rate replacement, based on which it became the first issuer out of Asia to issue Sofr-linked US dollar bond in the 144A market in September 2020 amounting to US$200 million.
With the new public Sofr bond offering, KDB aims to establish a benchmark for Korean issuers who will prepare for transition to Sofr-linked floating rate regime in the offshore debt markets.
The net proceeds of the Sofr green bond will be allocated towards financing and refinancing of new and existing eligible green projects, including projects related to the manufacture of rechargeable batteries for electric vehicles and/or the construction or expansion of renewable energy production facilities that satisfy the eligibility criteria for the clean transportation and the renewable energy categories of the KDB sustainable bond framework.
On the other hand, the net proceeds from the issuance of the fixed rate notes will be used for general operations, including extending foreign currency loans and repayment of maturing debt and other obligations
BofA Securities, Citi, Credit Suisse, J.P. Morgan, KDB Asia, and Mizuho Securities were the joint bookrunners and lead managers for the transaction.