Korea Housing Finance Corporation (KHFC), South Korea’s government-owned financial institution with a policy role to facilitate supply of housing finance, returned to the euro covered bond market as it priced on June 23 another negative-yielding social offering amounting to one billion euros (US$1.19 billion).
The Reg S/144A five-year deal was priced at 100.426% with a coupon of 0.01% and a re-offer yield of -0.075% – the lowest-yielding euro issuance from KHFC. This was equivalent to a spread of 18bp over mid-swap, which was 3bp tighter than the initial price guidance of 21bp.
In executing the transaction, KHFC held a two-day investor call with global investors after the lead banks were mandated on June 17. The transaction quickly gained traction among investors and was actively subscribed despite the uncertainty surrounding the post-Covid inflation and rising rates volatility.
The final order book amounted to over 1.3 billion euros from more than 57 accounts. In terms of geographical distribution, 34% of the bonds were sold in Germany, 16% in the United Kingdom, 14% in Benelux countries, 10% in the Nordics, 9% in France, 8% in Switzerland, 3% each in Italy and Austria, and another 3% in other jurisdictions. By type of investors, asset and fund managers accounted for 44% of the paper, central banks and pension funds 19%, and banks and other investors 37%.
The net proceeds are earmarked to finance and/or refinance new and existing projects from the eligible social categories in accordance with KHFC’s social financing framework.
As a government-owned agency, KHFC provides housing finance, including housing finance at policy rate to vulnerable groups. Through this issuance of social covered bond, KHFC not only established itself as a leading environmental, social and governance (ESG) issuer in Korea, but also succeeded in raising funds at negative yields again after the one billion euros in February 2020.
BNP Paribas, HSBC, ING, Societe Generale and Standard Chartered were the joint bookrunners and lead managers for the transaction, while KB Securities acted as a co-manager.