Oversea-Chinese Banking Corp priced a $1 billion 10-year Basel III Tier 2 subordinated note late on Thursday, illustrating the Singapore bank’s ongoing push to boost capital in order to replace maturing old-style subordinated debt.
The 144A/Reg-S registered note is the tightest bank capital instrument to be priced in Asia ex-Japan, buoyed by strong demand from institutional investors as well as a favourable interest rates environment, a source close to the transaction told FinanceAsia. This is the second time OCBC has issued a Basel III-compliant note this year.
“I can’t think of any other deal that has come inside 200bp [above Treasuries] from the Asia ex-Japan space,” the source said. “This is indeed a good outcome for the issuer.”
Orders were in excess of $3 billion from more than 180 accounts, of which more than half went to asset managers and 18% to pension funds and insurers, the source added.
The 10-year Treasury note yield fell 5bp on Thursday to 2.59% in part due to the weaker-than-expected US retail sales data and in part due to an escalating Iraq crisis, which caused increased safe haven flows. The US Commerce Department said that retail sales gained 0.3% in May, below the 0.6% rise expected on Wall Street.
Based on these factors, OCBC was able to tighten the price of its new Tier 2 note at Treasuries plus 175bp, which is 15bp tighter than its initial price guidance of Treasuries plus 190bp, according to a term sheet seen by FinanceAsia. The bond has a yield of 4.361%.
Singaporean banks had S$22.2 billion (US$17.76 billion) of outstanding old-style securities at the end of 2013, of which S$5.9 billion are callable or will mature in 2014, Moody’s estimated in a report dated March 19. The rest will be callable or mature by 2019.
Comparables
The closest comparables for OCBC’s new Tier 2 bond were Sumitomo Mitsui, Mizuho and ANZ’s existing notes expiring in 2024, which were trading at G-spreads of 147bp, 160bp and 167bp respectively prior to announcement, resulting in a fair value of around 177bp, a source familiar with the transaction said.
The Singaporean bank’s callable existing notes also maturing in 2024 were used as comparables and were trading at a G-spread of 200bp.
In the past, ICBC Asia — which sold Asia’s first ever Basel III-compliant Tier 2 note last October — priced its $500 million 10-year bond at Treasuries plus 315bp. Since then, spreads have tightened to around 200bp or so above Treasuries for other banks that have come to market as investors gradually warm to such instruments, but spreads are still not nearly as tight as OCBC’s new notes in the Asia ex-Japan space.
OCBC last sold a bank capital instrument in April, when it raised a $1 billion 10.5-year Tier 2 bond. The offering — callable in year 5.5 —is the largest Basel III-compliant dollar deal and the first ever bank capital transaction in the 144A market in Asia ex-Japan, according to Dealogic.
The Singaporean bank’s new paper is trading 4bp tighter at Treasuries plus 171bp in the secondary market, according to Bloomberg data.
Asian investors subscribed to more than half of the notes, followed by the US with 33% and EMEA 13%, according to the term sheet.
Elsewhere in the bank capital space, Krung Thai Bank is mulling a dollar-denominated Basel III-compliant Tier 2 note — the first ever out of Thailand — which will be part of its $2.5 billion medium-term note programme. Goldman Sachs and HSBC have been mandated to arrange a series of fixed-income meetings.
Bank of America Merrill Lynch, HSBC, JPMorgan and OCBC are joint bookrunners of OCBC’s transaction, which is also part of its existing $10 billion medium-term notes programme.
