Bank of East Asia raised a $650 million perpetual, non-call 5-year AT1 bond on Wednesday, priced at 5.5%, with Citi and UBS acting as joint bookrunners on the deal.
The Ba2 rated, Basel III-compliant transaction helps the Hong Kong bank to shore up its capital base with additional tier-1 capital.
BEA issued a $500 million hybrid tier-1 capital back in 2009 but as the issuance was made prior to more recent Basel III additional tier-1, or AT1, qualifications, the bank sought to replenish its capital under the new standards.
Bankers on the new bond said the old deal had become inefficient in terms of capital standards as only $300 million of the 2009 issue counted as bank capital on BEA's balance sheet this year, based on the new standards. As Basel III regulations phase in, less of the $300 million would qualify year after year.
The exchange plus tender takes out about 35% of its old bonds. The issuer was reportedly targeting 40% but the bookrunners advised that a 35% target is more efficient under current standards, citing liability management research.
As of writing, the order book on the deal stood at $2.2 billion.
BEA had been pro-active on the deal, as it was already the best-capitalised Hong Kong bank under current standards with a 17.6% capital asset ratio. With the additional issuance, the bank will have a higher-than-average 13.8% tier-1 capital ratio.
AT1 issuances from Bank of Communications and Bank of China, and BEA’s 2009 issuance, with a coupon of 8.5% and Ba3 rating, were used as comparables when pricing the new deal.
This article has been updated to correct the size of the issuance
