State-run Korea Development Bank (KDB) has sold its foreign currency-denominated bonds at cheapest ever borrowing costs among Korean public and private companies. Thanks to a series of upgrades of Korea’s sovereign credit rating by foreign credit rating agencies, the spread on the yield of foreign exchange stabilization bonds issued by the Korean government against that of comparable U.S. Treasuries was also narrowed to its smallest margin ever.

According to sources on Wednesday, KDB drew $3.6 billion for its $1.0 billion worth three-year and 10-year global bonds during the book building session held in New York, London, Singapore and Hong Kong.

The yield on its 10-year dollar-denominated bond was set at 2.098 percent, the lowest level ever among global bonds issued by Korean companies. The yield on the company’s three-year bond was decided at 1.433 percent, the second-lowest level among yields for three-year debts issued by Korean firms. The spread of its 10-year bond against 10-year U.S. treasuries is 0.550 percentage points, lower than that of its three-year, 0.575 percentage points. It is the first time for the country’s 10-year bonds’ spread against U.S. treasuries has fallen below that of 3-year bonds.

Korean bonds’ yields are now set at lower levels than those of bonds issued by Australia or Canada whose sovereign rating stands at AAA, suggesting that Korean bonds are further positioned as safe assets among overseas investors, an unnamed KDB official said.

Prior to KDB, Korea’s state-run Small & Medium Business Corp. (SBC) successfully issued its 10-year bond at a coupon rate of 2.236 percent a year in late August, and Korea Gas Corp. sold its 10-year $400 million worth global bonds at a yield of 2.325 percent in July.

Appetite for Korean companies’ debts remain strong after a series of foreign credit rating agencies’ upgrades of Korea’s sovereign rating since last year. Citing relatively sound economic growth and flexible fiscal and monetary policy, global credit ratings agency Standard & Poor’s (S&P) earlier last month raised the country’s credit rating from AA- to AA in 11 months after it upgraded it from a positive A+ to a stable AA- in September last year.

Meanwhile, the spread on the yield of 10-year foreign exchange stabilization bonds issued by the Korean government against those of U.S. Treasury peers was also narrowed to a record low of 0.18 percentage points last Friday.

By Koh Min-seo

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