Chairman Bang Moon-kyu of the Export and Import Bank of Korea (KEXIM).

The Export-Import Bank of Korea (KEXIM) has become the first Korean financial institution to issue notes worth $100 million linked to secured overnight financing rate (SOFR).

The SOFR is the benchmark the United States has designed as a replacement for the London interbank offered rate (Libor).

It is the first time a Korean financial institution has sold bonds linked to the SOFR. KEXIM’s sale of notes linked to the U.S. benchmark is the third instance in Asia, following the Asian Development (ADB) and Bank of China.

KEXIM’s one-year-floating rate notes carries SOFR plus 60bp, similar to the floating rate of bonds with the same maturity linked to Libor.

KEXIM had reportedly examined large-sized institutions and SOFR investors and sounded out their investment though diverse channels to sell the bonds.

The issuance of the bonds will be made available to take stock of the current status of the bank’s in-house infrastructure for the calculation of the SOFR interest rate.

As the interest rate benchmark Libor is confirmed to cease afer end of 2022 despite the COVID-19 pandemic, a KEXIM official said countermeasures need to be taken.

KEXIM’s bonds linked to the SOFR will serve as a model for Korean financial institutions which want to introduce the benchmark SOFR and issue floating rate bonds based on the SOFR, the official said.

A view of Korea Eximbank headquarters in Yeouido, Seoul. (Photos: KEXIM)

KEXIM Sells Euro-Denominated Bonds with Minus Yield

KEXIM sold global bonds worth a combined $1.5 billion to investors around the world on Sept. 15.

The global bonds are three-year euro-denominated bonds worth 500 million euros, five-year dollar-denominated bonds worth $400 million and dollar-denominated bonds worth $500 million with a 10-year maturity.

The bond sale was oversubscribed 5.1 times the target amount in bids worth $76.2 billion, reaffirming overseas investors’ strong trust in KEXIM’s notes as safe assets.

It came after the Korean government issued a euro-denominated foreign exchange stabilization bond with a minus yield for the first time, the lowest-ever interest rate, on Sept. 9 amid bigger fluctuations of the international financial market, such as sagging U.S. stock prices.

KEXIM reduced the spread of the global bonds 10 to 15 bp lower than the current interest rate of its bonds by capitalizing on the issuance of the previous foreign exchange stabilization bond, suggesting a benchmark interest rate favorable for other Korean issuers in the future.

In particular, KEXIM’s first three-year euro bonds carry a yield of minus 0.118 percent, the lowest interest rate offered by Korean financial institutions.

The 10-year dollar bonds yield 1.316 percent, the lowest interest rate offered by Korean entities since the 2008 global financial crisis.

KEXIM’s successful global bond sale, coupled with the government’s foreign exchange stabilization fund bond issuance, is expected to help other Korean company and financial institution bond issuers save costs when raising foreign currency capital.

The money raised through the latest bond sale will be used to provide financial support to SMEs struggling with hardships, caused by the pandemic, and finance “Korean New Deal” projects, a KEXIM official said.

KEXIM to Offer 56.2 Million Euros in ESS Project Financing to Hanwha Energy in Ireland

KEXIM plans to offer a 56.2 million euro loan to finance an energy storage system project Hawha Energy will implement in Island.

The project calls for the installation of energy storage systems with a combined capacity of 200MW at two sites in central Ireland. The project will cost 150 million euros, and Hanwha Energy will own an 80 percent equity stake.

It is a project financing in which the Korean company will play a leading role in the overall aspects of the project such design, procurement, construction, and maintenance & repair and Korean companies will supply key components and equipment such as batteries.

KEXIM Chairman & President Bang Moon-kyu signed a financing agreement on the project with Hanwha Energy President Chung In-sup at KEXIM headquarters in Yeouido, Seoul, on Aug. 13.

Chairman Bang said KEXIM has continued to cooperate from an initial stage of Hanwha Energy’s project as part of efforts to help Korean companies secure overseas new businesses ahead of others.

Given the fact that Korean companies boast capabilities to produce key components and equipment for the energy storage system industry, the state lender will expand its strategic support to explore new green energy business and preoccupy overseas markets, he added.