No takers for Korea bank's US$2b bond

PUBLISHED : Friday, 12 December, 1997, 12:00am
UPDATED : Friday, 12 December, 1997, 12:00am


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State-owned Korea Development Bank's (KDB) planned US$2 billion global bond has been shelved amid the country's financial crisis despite the lead manager increasing both the tenor and spread to lure investors.

With KDB required to repay $500 million in short-term debt later this month, leading bankers were last night questioning where the money would come from.

The Ministry of Finance yesterday became sufficiently concerned by slow progress on the bond sale to issue a statement confirming it was obliged to meet KDB's debt commitments.

In addition, a source close to the deal said the bond had been restructured to become a 10-year issue with a three-year put.

The spread offered to investors had also been raised to between 450 and 500 basis points above US treasuries.

However, investors have still not been convinced to take the bonds, raising fresh fears about Korea's economy.

Earlier in the week, lead manager J.P. Morgan shocked existing Korean paper holders by offering up to 350 basis points above treasuries on the new bonds - about 100 basis points wide of where existing KDB paper was trading.

The move helped drive spreads on all Korean issues wider and irked investors.

Yesterday, spreads on KDB's 10-year bonds were about 500 basis points above US treasuries.

The source close to the deal said investors had been spooked by yesterday's Standard & Poor's downgrade, which left Korea's long-term foreign currency rating at BBB-, on the verge of speculative or junk grade.

Many investors are not permitted to buy non-investment grade bonds by their firms' trust deeds.

A safety margin of one notch above speculative grade is usually expected by these investors, letting them resist immediate selling should a downgrade occur.

Seoul has been reported to be considering a sovereign issue due to the difficulties in raising funds for quasi-state firms such as KDB.