Malayan Banking Berhad (Maybank) became the country’s first bank to raise dollar-denominated Basel III compliant capital on Friday with a $500 million 10.5- non-call 5.5-year deal.
The Reg S transaction brings welcome diversity to Malaysia’s credit universe, which has recently been long sukuk and corporate issuance and short conventional dollar and bank issuance.
However, the deal’s Basel III status meant it was not popular with domestic bank treasuries as it attracts full capital deductibility. As a result, the peak $2.6 billion order book did not have the traditional domestic bank investors underpinning many Malaysian deals although syndicate bankers said some participated.
The final order book closed at the $1.8 billion level with roughly 100 accounts.
Pricing was initially pitched at 280bp over Treasuries (G-spread of 268bp) before the Baa2/BBB rated deal was priced at par on a coupon of 3.905% to yield 255bp over Treasuries.
There is a one-time issuer call option at par in year 5.5, subject to prior written approval from Bank Negara Malaysia (BNM). After the first 5.5 years, pricing is re-set to 254.2bp over five-year dollar mid swaps.
At 255bp over Treasuries, A3/A-/A- rated Maybank’s new deal has offered a 38bp pick-up over UOB’s A2/A+ rated 3.5% September 2026 deal (callable in 2021). This was trading at 217bp over Treasuries on Friday or 209bp on a G-spread basis.
Syndicate bankers calculated fair value at 260bp over Treasuries, implying a 5bp new issue premium. “We think this the right level since there’s normally a 40bp to 45bp differential between UOB and Maybank’s old style tier 2 deals,” said one.
Maybank’s BBB+/BBB+ rated 3.125% September 2022 issue (callable in 2017) was trading on a G-spread of 180bp on Friday. But the old style Tier 2 is highly illiquid given it was issued four years ago.
UOB’s 2.875% October 2022 deal (callable in 2017) was trading at 91bp on Friday.
Final stats show that 90% went to Asia and 10% to Europe. By investor type, funds took 40%, followed by insurers on 27%, banks 13%, private banks 10% and pension/sovereign wealth funds 4%.
Malaysia and Singapore also have similar rules on capital treatment.
In Malaysia’s case the point of non-viability (PONV) is determined by the central bank, Bank Negara Malaysia and the deposit insurance regulatory PIDM. Write-down is permanent and irrecoverable.
Unlike Korea, pre-emptive capital injections are not allowed in Singapore or Malaysia.
In Singapore, the Monetary Authority of Singapore can decide to make a public sector capital injection is needed. Likewise, BNM, PIDM or any federal or state government can decide that a capital injection is required.
At the end of 2015, Maybank had an overall capital adequacy ratio of 17.7% compared to 16.2% in 2014 according to S&P Capital Market Intelligence data. Its Tier 1 ratio stood at 14.5% at the end of 2015, up from 13.8% in 2014.
The bank also reported almost flat growth in 2015, with net profits rising only 1% to M$6.9 billion on the back of higher loan loss allowances (M$1.68 billion, up 320% year-on-year), higher impairment allowances (M$329 million) and higher expenses (M$10.2 billion).
Joint bookrunners for the bond deal were Deutsche Bank, HSBC and Maybank Kim Eng.
This article has been updated since first publication with final distribution stats.
