Korea Finance turns to dollar bonds

Korea Finance is marketing dollar-denominated bonds, the sixth Korean company to borrow overseas in the U.S. currency since May. Credit risk in Asia climbed from a three-week low.

The state-owned policy bank plans to sell five-year notes at a spread of about 165 basis points more than Treasuries, according to a person familiar with the matter, who asked not to be named because the terms aren’t set. The cost of insuring corporate and sovereign bonds in the region from non-payment is poised to rise from 134.5 basis points yesterday, the lowest since July 23, according to credit-default swap traders and CMA.

“Korea is seen as defensive as people prefer to hold high-grade paper in this kind of market,” said Esther Teo, a fund manager in Kuala Lumpur at Hwang Investment Management. “They’ve been well-supported and the new issues do give some premium when they come to the market. We selectively buy Korean paper.”

Korea Finance joins companies including Korea Development Bank, Hyundai Motor and Korea Gas Corp., which have raised about $2.5 billion in the dollar bond market since May, according to data compiled by Bloomberg. Korean corporates accounted for about a third of the volume generated by Asian borrowers, with Chinese issuers comprising almost 40 percent of the total.

Korean debt denominated in the U.S. currency has gained 0.2 percent this month versus a 0.5 percent rise for bonds sold by Chinese issuers, JPMorgan Chase indexes show, the only two winners among Asia’s six largest markets. The average yield on Asian dollar bonds has climbed 8 basis points this week to 5.72 percent.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 1 basis point to 136 as of 8:26 a.m. in Singapore, Royal Bank of Scotland Group prices show. The measure is also on track for its highest level since Aug. 12, according to data provider CMA.

The Markit iTraxx Japan index increased 1.5 basis points to 93.5 basis points as of 9:19 a.m. in Tokyo, Citigroup Inc. prices show. The benchmark is set for its first increase in three days and its highest close since Aug. 12, according CMA, which is owned by McGraw-Hill and compiles prices quoted by dealers in the privately negotiated market.

Bloomberg