KfW launches at least €500 million convertible into Deutsche Post; talked at 0.5%, up 11% to 17%

By Ronda Fears

Nashville, Jan. 12 - Kreditanstalt fuer Wiederaufbau launched a five-year "uridashi" bond exchangeable into shares of Deutsche Post AG for at least €500 million with guidance for a 0.5% coupon and 11% to 17% initial conversion premium.

Uridashi bonds are eurobonds sold to individual investors in Japan.

Nomura International plc is the bookrunner for the offering, which was made Wednesday in Japan.

The exact size of the bond will depend on demand, KfW said.

Assuming a Deutsche Post stock volatility of 20%, a stock borrow of 0.5%, the common dividend yield of 2.5% and zero spread to euribor for KfW, Barclays Capital Markets convertible analysts calculated theoretical value of the bond to be 98.0 on worst indicated terms and 100.2 at best.

That equates to an implied volatility range of 19.6% to 22.9%, the Barclays analysts said in a bulletin, noting that the 30, 100 and 200-day historical volatilities for Deutsche Post are 11.9%, 15.5% and 19.6%, respectively. Hence, option and convertible implied volatilities look expensive relative to current levels of realized volatility.

As such, the analysts said they find the deal theoretically expensive on anything but best terms, and to be at about fair value if it does price at the best end of the range for investors. Key risk factors for the valuation include Deutsche Post volatility and dividends, they said.

While the uridashi issue into the Japanese market implies that the international eurobond market will likely see very little of this paper, the Barclays analysts said an important point to note is that it lifts some of the supply overhang that impacts holders of the existing KfW-Deutsche Post exchangeable bond due 2007.

KfW is a German state development bank.

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