Dah Sing prepares new lower tier 2 sub-deal

Dah Sing Bank has hired HSBC to sell a new $150 million lower tier 2 subordinated offering. The deal will have a 10-year no-call five year maturity, and could be completed either later this week or early next week.

The borrower will hold individual meetings with investors throughout the week.

Obvious comparables for the new deal are its two existing subordinated transactions. Last year the bank sold a lower-tier 2 sub deal via Deutsche Bank due 2015, with a 2010 call option. That deal is currently trading at a bid offer spread of 67bp to 62bp over mid-swaps.

Dah Sing also sold a 12-year lower tier 2 subordinated deal, callable in 2012 via Standard Chartered last August. That deal was quoted yesterday at 75bp to 70bp over mid-swaps.

Both of these trades have been relatively illiquid and bankers suggest that a new 2016 deal should price somewhere between the two.

ôBoth of the previous transactions have traded sideways; not really performing or underperforming,ö says one investor. ôThere isnÆt a lot of excitement involved with this credit; itÆs pretty much a league table trade.ö

HSBC is said to have won the mandate with an aggressive underwritten bid.

ôBanks who had done business for them in the past had probably hoped that Dah Sing would have been a little more open to a negotiated transaction,ö says one observer. ôHowever, the client looks to have picked the lowest bought deal they could find.ö

Fitch has rated the sub deal BBB+ (Dah Sing is rated Baa1/A- at the senior level).

In its report, Fitch noted that ôDah SingÆs ratings reflect its consistent record of combining innovative management and prudent risk controls to achieve both good profitability and sound asset quality. Dah Sing's niche in unsecured retail loans and its larger proportion of high-margin consumer lending, especially from credit cards, have been contributing to the bank's superior net interest margin. However, mainly due to a squeeze in prime-Hibor spreads in 2005, its net interest margins fell to 1.98% from 2.92% in 2004. Lower net interest income and higher costs also resulted in a 15% decline in its net profit in 2005, although itÆs return on adjusted assets and return on adjusted equity was considered adequate at 1.2% and 13.6%, respectively.ö

Fitch also notes, ôThe bank continues to maintain superior asset quality with a low level of impaired loan ratio of 0.71% and adequate specific reserves coverage for its non-performing loans of 53% as at end of 2005. Additionally, the bank remains well-capitalised even after the acquisition of Pacific Finance and Banco Comercial de Macau in the second half of 2005. Its capital adequacy ratio and equity-to-assets ratio stood at 15.7% and at 8.7%, respectively, at end-2005. The bank's liquidity position was also comfortable, with an average liquidity ratio of 49% at FY05, versus the regulatory minimum of 25%.ö