South Korean automaker Kia returned to the US high-grade bond market for its first deal since 2017, launching a US$700m two-part green bond on Monday.
Kia garnered strong investor demand that helped tighten spreads by 35bp through price progression on the US$300m three-year and US$400m 5.5-year, which launched at 75bp and 90bp over Treasuries, respectively. Initial price thoughts were set in the area of Treasuries plus 110bp and 125bp.
Proceeds will be used to fund eligible projects under its green bond framework, which includes the development and manufacturing of zero-emission electric vehicles and investments in electric charging infrastructure.
Kia launched its Niro EV model last year and this year is looking forward to the launch of its EV6 line this summer. The two vehicles bring Kia closer to its goal of launching 11 new electric vehicles by 2025, according to an investor presentation.
Kia says its goal is to grow green cars – including electric vehicles, hybrid electrics and plug-in hybrid electrics – to 40% of total sales by 2030.
However, the auto sector, in general, is still one where investors such as Tony Trzcinka, portfolio manager at Impax Asset Management, see considerable risks.
Green bonds from the sector tend to walk a fine line between investing in business as usual and real sustainability goals, Trzcinka said.
“It’s the risk in the transition,” he said. “There’s a lot of change happening but EVs are still a very small piece of what they do and there are still emissions standards and a lot of reliance on SUVs and trucks. So, we have investments there but it’s an area where we’re cautious.”
Other credit factors helped drive investor support including Kia’s resilience through the pandemic as one of the few automakers not downgraded over the last year.
With ratings of Baa1/BBB+ from Moody’s and S&P, Kia maintains higher ratings than US carmakers GM and Ford, which maintain low Triple B and Double B ratings, respectively. Moody’s even improved its outlook for Kia to stable from negative last month.
Kia also receives support from its parent company Hyundai Motor, which has already raised US$3.3bn stateside this year, according to IFR data.
Hyundai, rated Baa1/BBB+, priced its own US$600m five-year green bond back in February at 92.5bp over Treasuries. The 1.25% 2026 now trades at a G spread of around 87bp, according to MarketAxess data.
“Kia’s Baa1 rating reflects its underlying credit strength, underpinned by the company’s considerable synergies with its parent, Hyundai Motor Company (Baa1 stable), solid position in the Korean automotive market, high geographic diversification, improving profitability and strong balance sheet,” said Wan Hee Yoo, senior credit officer for Moody’s.
Like Toyota last week, Kia and Hyundai are better positioned to navigate the chip shortage plaguing automotive manufacturers, according to a Reuters report. Both Hyundai and Kia are said to have maintained a stockpile of chips that will help the manufacturers keep up production amid heightened demand.
Bank of America, Citigroup, HSBC and Standard Chartered Bank are joint bookrunners on Monday’s deal.
Source: Nasdaq