Korea’s Woori Bank raises $550 mn in AT1 hybrid bond

South Korea’s major bank Woori Bank said on Thursday that it raised $550 million by issuing additional tier 1 (AT1) hybrid bonds on July 17 with a call option that can be exercised in five years.

Woori has cut the bond yield to 6.375% from the initially planned 6.750% and increased the issue to $550 million from $500 million as the hybrid note was oversubscribed more than six times in bookbuilding.

The yield is the lowest for an AT1 hybrid bond in the US dollar since Credit Suisse’s similar bonds worth $17 billion were completely written down in March last year, according to banking industry sources.

“Woori’s hybrid bond yield is even lower than 6.85%, the yield of US bank Wells Fargo & Company’s $2 billion worth of hybrid bonds sold a day before Woori’s deal. It proves the popularity of Korean hybrid bonds in global markets,” a foreign investment bank official said.

Woori became the first Asian financial institution to have issued AT1 hybrid bond since Japan’s Mitsubishi UFJ Financial Group Inc. sold the hybrid note last October.

AT1 hybrid bond, or contingent convertibles (CoCos), was introduced in 2008 in the aftermath of the Global Financial Crisis. The banknotes offer high potential returns but are also first in line for losses if the bank runs into trouble – the bonds can be entirely written down to zero.

Many global investors chose Woori’s hybrid bond as they believe a Korean AT1 bond has less write-down risk than other countries’ ones, thanks to the Korean government’s active support to distressed financial institutions, banking sources said.

It was also good timing for a bond sale as the Federal Reserve is expected to be close to cutting interest rates, sources added.  

Woori promoted the hybrid bond sale via investor relations events for 60 institutions across Asia, Europe and the US this month. The bank highlighted its capability of non-performing loan (NPL) management, risk management skills and low exposure to real estate project finance to attract investors.

The bank is expected to raise its Bank for International Settlements (BIS) capital adequacy ratio by 0.41 percentage point through the hybrid bond sale, according to experts' forecasts.

Write to Hyun-Ju Jang at blacksea@hankyung.com
Jihyun Kim edited this article.