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CEE & Turkey

CASE STUDY: KOC Holding Sees Tight Pricing on Benchmark Eurobond Despite Volatility

Koc Holding was able to issue a benchmark sized Eurobond amid considerable market volatility. The company was able to price the bond at a narrow spread over Turkish sovereign Eurobonds, highlighting the strength of the company’s fundamentals.

Dec 8, 2016 // 5:07PM

Deal At A Glance

Deal Type: Eurobond

Deal Structure: 144A/RegS

Location: Turkey

Borrower: Koc Holding

Ranking: Senior Unsecured

Listing: Irish Stock Exchange

Bookrunners: BNP Paribas, Citigroup, HSBC,  JP Morgan

Size: US$750mn

Tenor: 7 years (Maturing 2023)

Yield: 5.400%

Coupon: 5.250%

Issue Price: 99.135%

Issue Date: March 2016

Spread: MS + 391bp

Use of Proceeds: General funding purposes

Background

On 9 March 2016, Koc Holding successfully priced a US$750mn Eurobond due 2023, with a yield of 5.400%. Ratings were Baa3 (positive outlook) by Moody’s and BBB- (positive outlook) by S&P. BNP Paribas, Citigroup, HSBC and JP Morgan were the joint leads on the transaction.

The deal marks the first public transaction on the international debt capital markets from a Turkish corporate issuer in  2016, and the second time that Koc Holding has tapped the international capital markets.

Despite ongoing volatility this year around US monetary policy, low commodity prices, concern surrounding China, large capital outflows from emerging markets, and an increasingly worrying geopolitical situation, especially around Turkey’s borders, Koc Holding was able to successfully tap the markets with a favourable yield.

Transaction Breakdown

On 2nd March, Koc Holding announced a set of investor meetings in London, Los Angeles, New York and Boston. Koc Holding conducted a comprehensive marketing campaign meeting over 55 key fixed income investors during the roadshow.  In order to avoid the potential volatility risk around the scheduled ECB rate announcement on March 10th, the roadshow was compressed to three calendar days, with two teams visiting Boston and NY in parallel on March 8th.

A window of relative market stability following volatility in global markets at the start of the year, combined with strong investor feedback during the roadshow allowed for a swift intra-day execution strategy.

On March 9th, Koc Holding announced initial price thoughts of 5.625% for a benchmark sized 7-year offering. The orderbook reached over US$1bn by the opening of US markets, which allowed the company to revise price guidance to between 5.500% and 5.625%.

Final guidance was revealed at 5.45% plus or minus 5bp. The book showed resilience to tightening, which allowed the deal to price at the tight end of the guidance area, at 5.400%.

The transaction was priced off an orderbook that was approximately 2.3 times oversubscribed and was driven by accounts in London and the US. The number of orders for the bond reached around  200  and  the  orderbook  totalled over US$1.7bn.

The successful credit positioning of Koc Holding as the best proxy for the Turkish economy with a well-balanced and diversified portfolio allowed the company to achieve an aggressive new issue premium of only 5-10bps, a very low concession given the market conditions at the time.

The investor base was broad, with 37% and 33% of investors coming from the UK and US respectively, 25% coming from the rest of Europe and the remaining 5% originating from the Middle East and Asia. Asset managers made up 65% of the investor base, with banks constituting 19% and hedge funds and insurance companies making up the remainder.

The transaction enabled Koc Holding to enhance its liquidity position while also diversifying and extending its funding base with favourable terms.

CEE & Turkey

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