KB debuts in AT1 under sustainability framework

Kookmin Bank (KB) sold its first Additional Tier 1 on 25 June, a $500m (KRW593bn) perpetual non-call five transaction that attracted some $2.7bn of orders, and did so under the guise of its sustainable financing framework, following senior and Tier 2 issuance in the past nine months.

Under the South Korean bank’s sustainable financing framework, established in September 2018, bonds are aligned with the Green and Social Bond Principles, or both under the Sustainability Bond Guidelines, or in the case of loans, the Green Loan Principles, with Sustainalytics providing a second party opinion.

Eligible use of proceeds range from categories such as renewable energy to sustainable waste and water management for green bonds, and from SME financing and microfinance to access to essential services for social bonds.

After establishing its framework in October 2018, KB issued the first sustainability bond from a South Korean bank, a $300m trade, and then in January it attracted some $1.7bn of orders to a $450m Tier 2 sustainability bond – the issuer’s first offshore Tier 2.

Matthew Dong Seok Gim, head of treasury team, trading/capital markets department, at Kookmin Bank, told Bank+Insurance Hybrid Capital that KB sees ESG as a “megatrend” that it should follow. He noted that in the field of equity, ESG considerations have become increasingly statutory, and that if similar obligations develop in fixed income, being a first-mover could prove advantageous. The bank, having ample suitable assets, therefore established its sustainable financing framework to be at the forefront of developments, added Gim.

Having issued the senior and then Tier 2 deals, KB then stayed with the format for its first AT1, which it embarked upon as part of its regular funding plan and capital adequacy management strategy. The bank has the highest CET1 among commercial banks, but decided to raise AT1 to enhance its capital as outstanding Tier 2 amortizes, according to Gim.

Its AT1 is the first from Korea with two investment grade ratings, being rated Baa3/BBB+.

The mandate was announced on 11 June and, following a roadshow taking in Asia, Europe and the US, the 144A/Reg S deal was launched on 25 June. Following initial price thoughts of 4.70%, guidance was set at 4.35%-4.40%, and the deal was ultimately priced at 4.35% on the back of some $2.7bn of demand.

Gim said the bank was particularly pleased to see strong demand from US accounts for its first trade in 144A format in almost two years.

KB’s sustainability bond issuance has meanwhile led to an increase of around one-third in the number of accounts participating, according to Gim, although he said it is too early to judge how this positive development may be affecting pricing.

Ahead of the latest sustainability issue, KB released its first sustainable financing report. Gim noted that although under best practice issuers release such reports around a year after issuance, KB did so much earlier, highlighting how seriously the issuer takes its sustainability reporting.