Malaysian lender Hong Leong Bank last night priced a $300 million five-year senior bond — the first US dollar senior bond from a Malaysian bank — at a record yield.
With a dearth of high-grade Malaysian bank borrowers, Hong Leong’s debut senior bond clearly whetted investors’ appetite. Thanks to its rarity value, the deal priced well inside the guidance and, indeed, achieved the lowest-ever yield for a five-year US dollar issue from a Malaysian borrower. At 3.803%, it is even lower than the Malaysian sovereign’s $1.25 billion sukuk sold in May 2010, which paid a 3.93% yield.
Hong Leong is the sixth-largest lender in Malaysia by assets and part of Quek Leng Chan’s Hong Leong Group. It is a rare visitor to the dollar bond market and last tapped international investors in 2005 with a junior bond.
Even though the initial price whisper was closer to 200bp, Hong Leong’s latest senior notes priced at Treasuries plus 165bp, inside the final guidance, which was Treasuries plus 167.5bp, and 10bp inside the initial guidance. The coupon was fixed at 3.75% and the notes were reoffered at 99.761.
“There is a scarcity value for high-grade bank paper,” said one banker on the transaction. “Most of the issuance we have seen so far has been high-yield and the Korean banks haven’t yet hit the market in full force. We had a lot of disappointed accounts.”
Barclays Capital, Royal Bank of Scotland and Standard Chartered were the joint bookrunners.
The deal was 7.5-times covered with 130 accounts in the book. By geography, onshore Malaysia took up 20%, Europe 18% and the rest of Asia 62%. Banks took up 40%, asset managers 35%, insurers 15% and private banks 10%.
Support from Malaysian investors helped to tighten the pricing on the deal. “The onshore Malaysian investors were willing to pay 160bp over Treasuries while the offshore accounts were looking at a spread of 200bp over Treasuries. In the end, we came at the tight end of initial feedback,” said a banker on the transaction.
Investors had a hard time agreeing a price at first thanks to the diverse range of comparable borrowers, including Indian banks, Korean banks, Malaysian corporates, DBS Bank, Public Bank’s tier-2 paper, along with Bangkok Bank’s senior bonds.
Many viewed the closest comp to be the outstanding Bangkok Bank bonds, which mature in October 2015. Those bonds were trading at Treasuries plus 157bp yesterday afternoon. Bangkok Bank is similarly rated A3/BBB+/BBB+ by Moody’s/S&P/Fitch, but it is the largest bank in Thailand and hence enjoys stronger systemic support.
Hong Leong’s new bonds, which are rated A3 by Moody’s and BBB+ by Fitch, came less than 10bp behind Bangkok Bank for a five-month extension. Its new bonds mature on March 17, 2016.
For the moment, the scarcity value of Hong Leong’s bond is expected to support its performance in the secondary market. However, that might soon change, as other Malaysian banks are expected to tap the dollar market with a senior bond.
“In terms of supply, we may see CIMB and Export-Import Bank of Malaysia issuing US dollar senior paper later this year, as the former has recently got the regulatory approval for establishing its $1 billion MTN programme, while the latter has recently got rated by Moody’s and Fitch,” said Nomura analyst William Mak in his report.
However, he added, the supply from Malaysian banks should still be much smaller than Indian and Korean banks and, hence, should be well-absorbed by the market.
Away from Hong Leong, Thai oil major PTT Exploration & Production has mandated Barclays Capital for a series of fixed-income investor meetings globally. The company is said to have won approval to raise up to $700 million through a US dollar bond.
Elsewhere, Korea’s Hyundai Steel held investor update meetings at the end of February. Credit Suisse and J.P. Morgan arranged the meetings.
