S Korean firm seeks $550m in FRN issue

Sean Kennedy

SOUTH Korea's L G Electronics is seeking to raise cash through a $550 million floating-rate note (FRN), the first Hong Kong dollar FRN by a Korean corporate, but bankers in Hong Kong doubt the deal is the start of a trend.

Bankers said yesterday that arranger J P Morgan Securities Asia issued invitations to banks in South Korea and in Hong Kong to join the five-year issue.

They said the electronics manufacturer was offering a coupon of 45 basis points (0.45 percentage points) over the three-month Hong Kong interbank offered rate (HIBOR).

An FRN is an issue of debt securities or notes paying a floating rate of interest for the life of the deal.

Banks investing $60 million or more received an all-in yield of 53 basis points.

They said J P Morgan appeared to have sold the deal to L G Electronics on the strength of a subsequent currency swap into United States dollars.


'It's a more attractive way for them to raise US dollars in terms of funding costs,' said a banker.

'It would be better than if they came straight out with a US dollar issue.' However, he said the deal was unlikely to mark a new trend for South Korean corporates and banks that have blazed a trail through Hong Kong this year in search of US dollars.

'The real issue is, how many deals like this you can do.

'It's a matter of how receptive the Hong Kong market is to a variety of credits.' An arranger active in the Hong Kong dollar market said few Hong Kong investors were impressed with the prospect of South Korean corporate debt in Hong Kong dollars.


They could choose a 20 per cent risk-weighted Hong Kong dollar debt offering a more attractive overall yield than this, he said.

'I think it's too expensive for a 100 per cent risk-weighted South Korean corporate.


'J P Morgan is hoping that L G's charisma will help them to syndicate the deal.' He said J P Morgan probably had a swap position it wanted to cover, while the attraction for L G Electronics was an arbitrage between HIBOR and LIBOR (London interbank offered rate), which cut the corporate's cost of funds.

He also questioned why a company like L G Electronics, a natural borrower of US dollars, was seeking to tap the Hong Kong dollar market, which had been swamped by borrowers in recent months.

At least one other South Korean corporate has sought to raise funds through non-US dollar channels recently: Samsung Electronics entered the market, earlier this month, with the first European Currency Unit (ECU) FRN.