Pricing for two recent Korean cross-border private placement transactions has again left Asian ABS bankers scratching their heads. According to reliable sources, Hyundai Capital priced its three-year $300 million auto-loan ABS at 14 basis points over Libor, while LG Card's $500 million credit card issue offered an 18 point spread.
Both companies have been active cross-border ABS issuers in recent years and both deals were rated at the triple-A level. Despite this, a banker not involved described the spread levels as zany' for unwrapped Korean deals, particularly given that the arrangers in the offerings were also the major investors in the paper.
The LG deal is widely thought to have been bought in its entirety by Merrill Lynch, who structured the deal. In addition to arranging duties, Royal Bank of Scotland bought the bulk of Hyundai Capital's offering with ING - the swap counterparty - buying the remainder.
Hyundai's spread was just one point outside the 13 basis point benchmark established by Standard Chartered First Bank on a 500 million RMBS in March 2005 (ASR, 4/4/05). However, that deal benefited from a monoline wrap and higher quality assets.
"You can understand why arrangers are also active investors in deals these days as fees are not what they used to be," one market veteran said. "But I fail to see how they can justify taking on unwrapped Korean risk at those levels. I guess there isn't anything else for them to buy in the region."
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