Returning to the senior dollar markets for the first time since 1999, the Aa3/AA- rated credit launched a $500 million FRN late on Wednesday under the joint lead of Goldman Sachs and Nomura. The five-year issue successfully leveraged price tension between Europe and Asia to bring the deal in line with outstanding comparables and achieved a roughly even distribution split between the two regions.
With pricing at 99.904% on a coupon of 10bp over Libor, to yield 12bp over, the deal was syndicated on a retention basis, with about 55% of Goldman's book placed with Mainland accounts and about one third of Nomura's with Greater China accounts. This split reflected the fact that the US investment bank had taken the borrower on a two-day non-deal roadshow to Beijing and Shanghai, while Nomura had been tasked with creating price tension out of Europe.
Alongside the leads, ICBC acted as co-lead with Bank of East Asia, Bank of China Hong Kong, Bank of China Singapore and CBA as co-managers.
At the time of pricing, benchmarks such as the UK's HBOS, which has a one notch higher rating of Aa2/AA, was trading at 10.5bp over Libor on an outstanding five-year deal, while Australia's largest lender NAB, was trading at 12bp over.
Here John te Wechel, group general manager funding, discusses the strategy behind the bank's efforts to cultivate a Mainland client base.
FinanceAsia: What is the history behind your decision to target the Mainland market?
te Wechel: Over the last 12 months about 70% of our long-term debt funding has been sourced from Asia. We clearly saw that there's a lot of liquidity in this region and strong demand for credit. Coupled with this, CBA also has banking, asset management and insurance businesses across the region, including a recently established joint-venture with China Life in Shanghai. When we thought about how we to lift CBA's profile in the region, a bond issue like this seemed to make a lot of sense and we decided to do a very targeted roadshow. It was also a very natural progression from all the private placements and structured trades we've launched off our MTN programme over the past year.
So who bought the deal?
It was mainly bank investors and most of the paper was booked out of Hong Kong since the Mainland banks have their Treasury operations based in the Territory. But we also thought it was important to go and visit the head offices and some of the branches on the Mainland to talk about our strategy.
And what was your impression?
That we are talking about a sophisticated investor base looking to diversifying its asset base. Most of these banks were already well known to us anyway through our long-term banking relationships, but we found that they were particularly keen to discuss our experiences since we were privatised back in 1996.
What key points did you highlight?
The first one was that we have established very strict controls over our lending activities to ensure our credit book remains sound. We also underlined the shareholder returns we've delivered since privatisation. In fact in a recent Wyatt survey, CBA came out top of 400 international banks in terms of delivering shareholder value over the last five years.
Were you happy with the way that the deal ended up being distributed?
Yes it certainly exceeded all our expectations. Probably about 50% of the book ended up being placed in Europe and 50% in Asia. Most of the Asian distribution was booked through Hong Kong, however, because the Mainland banks cant hold the bonds in China. It was also important to make sure we didn't ignore our investor base in Europe, or be seen to price a deal too cheaply against our comps. Instead we were able to leverage off the two regions to achieve tight pricing.
Where does CBA go from here?
We don't have a huge funding requirement. In fact last year, we probably raised about A$4 billion ($2.25 billion) in debt funding and a further A$4 billion through the securitization market. This year will be pretty similar. What sets us apart from other borrowers is that the majority of our funding is sourced from Asia. We've always been quite active in the Hong Kong dollar market for example. I think the next step for us now is to think about some more private placement and structured trades again.
