The Hong Kong branch of Industrial & Commercial Bank of China late Wednesday night priced a $750 million 10-year senior bond that offers direct exposure to the bank’s onshore parent.
The notes were issued by Skysea International Capital Management, an entity established by ICBC International Leasing, which in turn is wholly owned by ICBC, the world’s biggest bank by market capitalisation. ICBC’s Hong Kong branch is the guarantor.
The deal was marketed to investors in the area of 10-year Treasuries plus 320bp and priced at Treasuries plus 310bp. The coupon was fixed at 4.875% and the notes were reoffered at 97.708. The deal gathered a $2.25 billion order book from 160 investors.
Barclays, ICBC International and UBS were joint global coordinators and bookrunners. HSBC and Standard Chartered were also joint bookrunners.
ICBC’s Hong Kong branch, the guarantor of the bonds, belongs to the same legal entity as its mainland parent ICBC, so investors were effectively taking direct exposure to the parent. This contrasts with ICBC Asia, the Hong Kong subsidiary of ICBC, which is a separate legal entity from the parent. Similarly, other bond issues such as Bank of China (HK) do not offer exposure to the mainland parent but rather to the Hong Kong subsidiary.
“ICBC (HK) is the most direct exposure investors have to a mainland Chinese bank,” said one person familiar with the deal. “This attracted a lot of demand from insurers, particularly from Taiwan and Greater China, which anchored the book and took up a third of the deal,” he added.
Insurance funds were allocated 33%, banks 29%, fund managers 25%, private banks 8% and corporates and others the remaining 5%.
Another noteworthy aspect was the size of the deal. The last deal this year of similar size offered to European and Asian investors was China Resources Power’s $750 million perpetual, which priced late April, when market conditions were calmer.
ICBC’s senior bond in any case drew minimal participation from European investors, which together with offshore US accounts were allocated a mere 5%. The book was overwhelmingly dominated by Asian investors, who took up 95%.
The deal also went to market just after Standard & Poor’s cut its rating on a number of global banks, including Bank of America, Goldman Sachs and Citigroup. However, at the same time, S&P also raised its ratings on Bank of China and China Construction Bank, and affirmed its A rating on ICBC. While the rating agency’s action on the Chinese banks was positive, the downgrade of banks worldwide led to volatility in the markets.
There were no exact comparables in the market, but the closest was the Bank of China (HK) 2016s, which were trading at five-year Treasuries plus 272bp. According to the person familiar with the deal, to account for the spread between the 2016s and 2021s, one reference point is the spread between the CNPC 2016s and 2021s, which was worth about 50bp.
He added that the spread between a new ICBC bond maturing in 2021 and the BOC (HK) 2016s is probably closer to 35bp, which would put the new issue premium at about 5bp. This is somewhat debatable given the lack of precise comps and based on the initial guidance — one investor suggested the deal was “cheap by 30bp”.
The issue is rated A1 by Moody’s and A by S&P. The funds raised are said to be for ICBC’s offshore leasing business. The bonds mature on December 7, 2021.
Away from ICBC, America Movil, a Mexican telco owned by billionaire Carlos Slim is marketing the first dim sum bond from a Latin American credit. The company will hold investor meetings in Singapore and Hong Kong on December 5 and 6. HSBC is the sole arranger.
