The Export-Import Bank of Korea (Kexim) used to be a name well known in sovereign, supranational and agency circles but not one that spread its issuing tentacles far and wide like some of its export-related brethren. Whereas the likes of Sweden’s SEK and Norway’s now defunct Eksportfinans maintained a prominent position in a wide range of markets, Kexim only had $2bn to fund each year and would pick and choose its trades accordingly, taking 70% of that total from the dollar market. That all began to change around 2006.
Since then Kexim has penetrated different currency markets to the stage where non-dollar funding accounts for 40%-60% of its borrowing total each year. It has now printed deals in 27 currencies. It is just as well that it has. During the crisis era, when market access became much less certain for even the very best and well known credits, Kexim has seen its borrowing requirement grow to $11bn (2012). It has $10bn to do this year, more than public benchmark market stalwart Export Development Canada, which has an $8bn task this year.
There were twin motivations behind the diversification — pricing and access to capital. “First, the cost issue is one of major concern as we raised most of our financing needs from the international market,” says Hee Sung Yoon, Kexim’s director general of the international finance department. “Secondly, we need to diversify our investor base to secure stable market access and to prepare for any potential disruption in the dollar market.
“The funding size — over $10bn — motivated us to tap alternatives to the dollar market, as the dollar market alone cannot accommodate our total funding size, considering the competing supply out of Korea.”
And Kexim’s enlarged footprint in the capital markets looks set to remain. A strong Korean export sector means that the bank expects to maintain a high level of borrowing.
Furthermore, a reorganisation among Korean public sector borrowers means that Kexim’s responsibilities will grow. The Korean government announced a recent plan to reshape policy financing. Korea Development Bank (KDB) will re-merge with Korea Finance Corporation (KoFC) with Kexim expected to take over KoFC’s overseas assets and overseas financing function.
Nonetheless that will not send Kexim’s borrowing requirement rocketing upwards in the near future. “We don’t expect changes in our funding task over the next 12 months,” says Yoon.
Tackling a $10bn-$11bn annual borrowing requirement will see Kexim continue to access various markets. “It will be difficult to focus on either a single or a few markets to accommodate our funding needs,” says Yoon. “That is why our diversification strategy has been one of the crucial factors for Kexim’s funding strategy.
“Kexim has been tapping various markets to maintain long term relationships and to go further to develop a potential investor base for decades.”
Of the twin motivations that have driven the borrower’s diversification, the need for market access should dollar markets be disrupted, has taken priority with Kexim saying it will tolerate several basis points of increased costs of funding as long as the market that is bringing the cost is also delivering valuable new investors.
One prime example of Kexim’s expansion into new markets was its inaugural green bond. Kexim brought the deal to access an entirely new investors base, while addressing the bank’s own green growth initiative, which began in 2009. There were challenges in bringing the deal. Kexim has a double-A rating, but almost all green issuance previously had been from triple-A rated supranationals. That meant Kexim had to build awareness of its green growth initiative. But the outcome was a success, bringing new investors to Kexim’s bonds and bringing a double-A rated issuer to the green bond market.
Another key deal from this year was a return to euros — a €750m 2% April 2020 deal in April — which Kexim sees as a strategic market for the future.
The borrower had previously been hamstrung by an unfavourable basis swap back into dollars, in which Kexim’s assets are normally denominated and accounted for. Despite that hurdle, Kexim undertook European roadshows to talk to investors about a potential euro market return. The green bond also played a part by allowing Kexim to engage with green investors in Europe.
The borrower found that investors in Europe were keen on its credit quality, while lead managers involved in the deal and in a similar deal for KDB say that a lack of financial sector paper from European names left European investors hungry for alternative supply.