Almost $6 billion was raised on Wednesday by two of Asia’s biggest banks and a Chinese asset management firm, as global investors hungry for yield gobbled up their bonds.
Sumitomo Mitsui Banking Corp (SMBC) sold a $3 billion multi-tranche offering, the first Japanese financial institution to sell a dollar-denominated note — also known as a yankee bond — greater than $500 million in just over two months.
The 144A/Reg S-registered offering — comprising a $1 billion three-year tranche, a $500 million three-year floating-rate note, a $1 billion five-year fixed-rate bond and $500 million in 10-year paper — drew strong interest, especially from Asian investors, a source close to the transaction said.
DBS Bank, the largest financial institution in Southeast Asia by assets, also priced a $750 million five-year fixed-rate senior note and a $500 million five-year floating-rate bond. The latter offered a reverse inquiry — when investors reach out to an issuer to request for a particular type of instrument with different pricing terms and structure. The transaction was also 144A/Reg S-registered.
“Overall the general theme for investors is that they’re chasing for yield,” a Hong Kong-based syndicate banker told FinanceAsia. “There’s not much US dollar 144A paper where you can get a decent return at the moment.”
Elsewhere, China Huarong Asset Management, the third mainland Chinese asset management firm to launch a debut dollar-denominated bond, raised a $300 million three-year note and a $1.2 billion five-year paper solely in the Reg S market — which doesn’t include onshore US investor participation, according to a term sheet seen by FinanceAsia.
Although some investors have some reservations about China’s asset management sector, Mizuho Securities credit analyst Mark Reade expects continued solid support for China Huarong’s bond sale.
“In the current environment we expect solid support for this deal from banks, private banks and asset managers chasing what are set to be among the highest-yielding high-BBB China state-owned enterprise bonds on issue,” Reade said before the bond was priced.
The issuance of these notes came amid the release on Wednesday night of the US Federal Reserve's June meeting minutes, which were more dovish than analysts expected. The Fed outlined how it plans to end its long-standing super-loose monetary policy, indicating that it will end its asset purchases in October and appearing near agreement on how it will manage interest rates, according to the minutes.
In response, benchmark 10-year US bond yields fell to as low as 2.54%, its lowest level since July 1, having risen by as much as 4 basis points ahead of the minutes, according to Bloomberg data.
“Although there weren’t any material changes in market sentiment after the release of the Fed’s minutes, it has made the backdrop more positive overnight,” the syndicate banker said. “It was a good day to launch deals.”
According to Dealogic data, Asia Pacific dollar-denominated bonds have reached a record $176.8 billion year-to-date, a 26% jump from last year's $140.4 billion during the same period.
SMBC
Although the statistics of the investor breakdown for SMBC’s deal are not available, a second source familiar with the matter said high-quality investors from Asia, including regional central banks, asset managers and global emerging market funds, participated in more than half of the transaction.
“Asian investors look a lot at US and also Australian banks and, within this rating category, SMBC’s bond priced a bit wider so investors see value in that given that spreads are so tight, especially across US bank credit at the moment,” the source told FinanceAsia, adding that the yield pickup compared with US banks for Asian investors is around 10bp to 15bp.
SMBC’s three-, five- and 10-year fixed-rates notes were marketed at an initial price guidance of US Treasuries plus 55bp to 60bp area, 70bp to 75bp area and 100bp area, respectively, but tightened to Treasuries plus 45bp, 60bp and 85bp, according to a term sheet seen by FinanceAsia. This resulted in a yield of 1.35%, 2.25% and 3.4% for each of the tenors, respectively.
The floating-rate note, meanwhile, priced at three-month Libor plus 32bp.
The key comparables for the transaction were the Japanese bank’s existing notes expiring in 2017, 2019 and 2024, which were trading at a G-spread of 27bp, 42bp and 82bp respectively prior to announcement.
“This was priced roughly flat or a couple of basis points wider versus their secondary levels, which isn’t a bad outcome for the issuer who was looking to raise $3 billion,” the second source said.
In the secondary market, SMBC’s new five- and 10-year bonds tightened marginally to trade at Treasuries plus 57bp and 78bp respectively. The three-year offering widened slightly to trade at Treasuries plus 48bp, according to Bloomberg data.
Mitsubishi UFJ, the last Japanese financial institution to issue a yankee bond, priced a $750 million dual-tranche bond in May, according to Dealogic data.
Bank of America Merrill Lynch, Barclays, Citi, Goldman Sachs and SMBC Nikko were joint bookrunners on SMBC’s deal. Daiwa, Deutsche Bank, HSBC, JPMorgan and Nomura were co-managers.
DBS
DBS’ dual-tranche transaction — 2014’s first dollar-denominated senior financial deal out of Singapore — was also heavily subscribed by high quality investors, sources familiar with the matter said.
Asset and fund managers bought 38% of the fixed-rate notes — which was more than three times oversubscribed by 140 accounts — while central banks, private funds and sovereign wealth funds purchased 43%.
As for the floating-rate note, asset and fund managers subscribed to 56%, while the rest went to financial institutions. The instrument has an order book of $600 million from 15 accounts.
“We actually think this deal will perform strongly…that’s especially the case given the scarcity of AA-band financial paper globally and Singapore senior financial paper in particular,” a Hong Kong-based credit analyst said. “For what it’s worth this deal also highlights to us the value that still exists in Singapore Basel III-compliant Tier 2 bank subordinated debt, given the high quality of Singapore’s banks and the country’s supportive regulatory regime.”
DBS’ five-year fixed-rate bond priced at US Treasuries plus 58bp was in line with its initial price guidance of Treasuries plus high-50s area, while the five-year floating-rate note priced at dollar Libor plus 50bp, according to a term sheet seen by FinanceAsia.
DBS was the sole global coordinator and joint bookrunner of the transaction, which falls under the bank’s $15 billion global medium-term notes programme. Other bookrunners included Citi, Deutsche Bank and Goldman Sachs.
China Huarong
China Huarong’s dual-tranche bond is the third dollar-denominated transaction from a Chinese asset management firm. Last September, China Orient Asset Management printed a debut $600 million five-year bond, while Cinda China Asset Management sold an inaugural $1.5 billion dual-tranche note in May.
The bond is guaranteed by Huarong Hong Kong International Holdings and supported by a keepwell deed, liquidity support deed and equity interest purchase undertaking from China Huarong Asset Management, which owns 100% of the issuer and guarantor.
The three- and five-year tranches priced 30bp and 25bp tighter than their initial price guidance of US Treasuries plus 245bp and 260bp, to bear a yield of 3.128% and 4.077%, respectively. The proceeds will be used for working capital purposes.
“This just shows that investors are warming up to China’s asset management sector,” a source close to the deal said. “Also, it’s 100% government-owned and is EMBI [Emerging Market Bond Index]-eligible.”
China Huarong Asset Management was established by the Chinese government in 1999 as one of four asset management companies tasked with removing problem loans from China’s major banks prior to their listing. The firm’s operations now involve distressed asset disposal and restructuring, financial intermediary services, investments and other operations.
ABC International, CCB international, China Merchants Securities, Citi, Credit Suisse, DBS, ICBC Asia, Jefferies, Shanghai Pudong Development Bank Hong Kong branch, Standard Chartered and Wing Lung Bank were the joint bookrunners on the transaction.
