Deutsche Bank today launched a Hong Kong dollar bond for Cheung Kong, one of Hong Kong's most influential conglomerates run by Li Ka Shing. The launch of the HK$300 million ($38.5 million) deal also co-incided with an announcement that the German bank is planning to allocate more resources to the domestic Hong Kong dollar market.
The Cheung Kong deal offers three-year floating rate notes, with a re-offer price of par and coupon of 28bp over three month Hibor. The deal was Cheung Kong’s first offering this year in the Hong Kong market.
“We are honored to have had the opportunity to assist Cheung Kong in this funding exercise,” says David Zezza, Deutsche’s co-head of Asian markets, in a statement. “With the launch of MPF, Deutsche Bank is very optimistic of the future development of the HK dollar bond market and will devote more resources to contribute to the growth of this market sector.”
The tone of the message is an interesting statement of intent, at a time when other banks have been highly critical of HSBC, whose dominant position is said to have a negative impact on the local market. This resentment was fuelled again last week when the bank won yet another significant mandate - a HK$2.5 billion issue for the Hong Kong Airport Authority (AA).
“The AA transaction was not the first deal this year to have the same comments made about it,” comments one local banker. “I think the issue is not so much about HSBC’s market share, but more whether deals are being done efficiently for issuers and investors without the arranger doing things that go on his own balance sheet.
“It’s been suggested that in this case, the arranger's own balance sheet is the principal buyer of these deals, and a number of houses will not operate on that basis,” the banker continues. “Our role is to arrange and not to buy - we don’t print deals to put them on our own books.
“It really is clutching at straws if a market gets excited about someone else being mandated to do a HK$300 million deal,” he argues. “In my view, there doesn’t seem to be a lot of transparency in Hong Kong and with the way it is now, I don’t think anyone is doing anything to foster their presence in the Hong Kong market.”
Unsurprisingly, HSBC’s response to claims that it is hard for other banks to establish a presence remains unapologetic. “It’s a freely open and competitive market and there is nothing to prevent other houses bidding to do deals,” an official at the bank says. “It is fair to say, though, that we have a competitive edge, and that’s to do with our strong client relationships, an aggressive trading desk, and distribution capabilities. That is what gives us a better handle on the market than the other houses.
“The other group that tried to do the AA deal was looking at loan levels when it made its bid [AA had previously used the syndicated loan market as its favored funding source rather than the bond market],” the official continues. “This is not a loan, it’s a FRN [floating rate note] deal and that’s the way we looked at it. That group has little distribution: we do, and we have no desire to put HK$2.5 billion on our books.”
The official likened the criticisms of its rivals to a smear campaign, and suggested they would be better served channelling energies in a more positive way. “It’s interesting if you look at the deal that the losing bidders were calling up banks telling them not to invest in this, trying to trash the deal, notwithstanding the fact they wanted to do it in the first place,” he argues. “It says something about them that they’ve got so much time on their hands to make negative calls to people rather than doing something positive to establish a presence in the market. It’s indicative of their attitude.”
