Bankers involved in an inaugural covered bond for Korea Housing Finance Corporation have said that choppy markets last week explained the pricing of the new issue, but some market participants suggested did not reflect the extra security the structure offered investors.

Bookrunners BNP Paribas and Standard Chartered priced the $500m five year deal at 235bp over Treasuries in New York hours on Thursday. The five year bond had tightened to about 218bp by Monday afternoon Hong Kong time, according to an investor.

"It’s positive that they got it away, but the pricing has set a poor benchmark," said a debt banker in Hong Kong. "It was priced wider than they could have got senior unsecured paper."

Structured finance bankers who had not worked on the deal said that given the covered bond protection, the deal should have been priced tighter than senior unsecured debt from quasi-sovereigns, such as Industrial Bank of Korea’s (IBK’s) 2015 bonds, which were trading at 205bp/185bp at the time of KHFC’s issue, and 2015 paper from Export Import Bank of Korea (Kexim) trading at 205bp/180bp.

"A senior unsecured issue should have priced flat to IBK, as there would have been a bit of scarcity value there," said the debt banker. "With all those, you would have expected that with the covered bond structure in place it would have priced through IBK."

However, bankers close to the deal said that KHFC’s issue was launched into choppy markets facing a surfeit of supply, and that investors were demanding large new issue premiums for Korean borrowers after Kexim issued a $1.25bn 10 year deal at tight levels last month that then performed badly in the aftermarket.

"Investors had a bad taste in their mouths from Kexim’s deal, which was priced very tight and underperformed," said a banker on the covered bond. "KHFC was launched into a choppy market and people wanted a new issue premium, as other recent deals have done – KEB offered a 25bp new issue premium, for example."

KHFC offered a 10bp-15bp new issue premium as well as 8bp to account for the three to four months longer maturity compared with Kexim’s 2015 bonds – which bankers working on the deal felt were the best comparable.

"KHFC was keen to make sure it was a good deal," said a banker working on the trade. "There were three camps on the pricing comparables: some thought it should be north of the sovereign; some thought it should be Kexim flat; and others thought it should be Kexim plus as KHFC does mortgages, which aren’t the flavour of the month.

"In the end it was a blend of the three."

The banker said that after the debut, KHFC could be more ambitious.

"KHFC and the government are hoping that as the market becomes familiar with KHFC’s credit and the extra protection of the covered bond structure, future deals will price inside even Kexim," he said.