Swiss wealth manager Julius Baer notched up a number of firsts when it accessed the Singapore dollar bond market on Wednesday with an S$450 million ($317 million) perpetual, non-call five, Additional Tier 1 (AT1) bank capital deal.
The Baa2 rated, Basel III-compliant transaction not only marks the first AT1 issue by a foreign bank in Singapore dollars but also represents the first high trigger bank capital deal across the wider Asian region as well.
With high trigger AT1 deals, investors suffer a permanent principal write-down if a bank's Common Equity Tier 1 (CET1) ratio falls below 7%.
It is a structure commonly used by European banks but has no precedent in Asia. In China, Hong Kong and Singapore, each country’s respective monetary authorities determine when a bank has reached the point of non-viability (PONV).
Korean AT1 deals incorporate triggers but the level is a far lower CET1 ratio of 1.5%. The Korean regulator is also able to make pre-emptive capital injections before investors have to absorb losses, which is far more creditor friendly.
Unsurprisingly, Julius Baer's offering attracted strong demand from private banking investors, who accounted for about 70%-80% of allocations according to one banker. Most of the demand came from Asia but the banker said Swiss investors also featured prominently.
"It's a name they're very comfortable with and it enabled them to get some yield," the banker added.
The final order book closed around the S$1.8 billion mark, enabling pricing to be narrowed from original guidance around the 6.375% area to 10bp either side of 6%. Final pricing was fixed at par on a coupon of 5.9%.
This level offered investors an attractive yield kicker to the outstanding Singapore dollar-denominated AT1 deals from local banks such as DBS and OCBC, which are trading around the 3.8% to 4% level.
Bankers said Julius Baer's deal performed well during its first day of secondary market trading, ending Thursday up half a point.
At the end of June, Julius Baer recorded a CET1 ratio of 19.1%. Switzerland’s third largest wealth manager by assets is currently rated A3 by Moody's but is on negative outlook.
One reason why investors may have been attracted to its deal relates to a potential takeover by Credit Suisse. The rumours are not new but have recently been given added credence by the latter's plan to list its Swiss bank and raise new capital, which could be used for acquisitions.
Last month, Credit Suisse's new CEO Tidjane Thian said he intended to prioritise wealth management over investment banking.
DBS, Citi, and UBS were joint bookrunners on the new AT1 deal, with Julius Baer and acting as co-manager.
