South Korea’s Shinhan Financial Group Co. became latest Korean issuer of hybrid securities with a $500 million offering to bolster capital ahead of the tougher accounting guidance from 2021.
The Basel III-compliant (dubbed as new-style) subordinated debt and Additional Tier 1 capital securities of the leading financial holding entity was priced at 5.875 percent, 305 basis points above the five-year U.S. Treasury yield and 37.5 basis points lower than its initial guidance for the coupon on the perpetual bonds thanks to oversubscription. The debt drew $2.4 billion order, 86 percent from Asian investors and the remaining 14 percent from investors in Europe, the Middle East, and Africa.
Shinhan Financial’s senior debt is rated A1 by global credit rating agency Moody’s. The hybrid securities are rated lower at Baa3 due to a number of risks. HSBC, JP Morgan, Credit Suisse, Mizuho Securities and Bank of America Merrill Lynch were joint book runners.
Hybrid bonds are regarded as an asset, rather than debt in the balance sheet, an attractive option to financial companies who need to expand capital ahead of the introduction of IFRS17 accounting standards and Basel Ⅲ capital adequacy ratio. Hybrids are perpetual bonds that pay return rates as in equity pays dividends.
The financial group is readying domestic offering of 300 billion won ($268.2 million) issue in hybrid capital securities in Korea, according to sources.
On Wednesday, shares of Shinhan Financial closed 1.76 percent higher at 43,400 won.
By Chung Hee-young and Choi Mira
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