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RHB Bank sold a $300 million five-year bond on Monday, the third dollar-denominated offering over the value of $100 million from a Malaysian borrower so far this year.
The Reg S-registered note ended up pricing 15bp tighter than its initial price offering of Treasuries plus 145bp area, riding on the rarity factor and the positive momentum gathered from its potential merger with CIMB and Malaysia Building Society.
If successful, the merger would create Malaysia’s largest financial institution with total assets of M$614 billion ($188 billion). Moody’s described the potential transaction as credit positive for RHB Capital given the increased scale and stronger funding profile.
“We think Treasuries plus 130bp is around fair value based on RHB’s standalone credit profile and provides a further 10bp of upside in the event that the potential RHB, CIMB, MBS merger is completed,” said a Hong Kong-based credit analyst.
RHB is Malaysia’s fourth-largest bank, with total assets of M$181 billion, translating into a domestic market share of 9.7%. The bank is wholly owned by RHB Capital, which is listed on the Bursa Malaysia and has a market capitalisation of M$22.8 billion.
RHB Capital is 41.3% owned by Malaysia’s Employees Provident Fund and 21% owned by Abu Dhabi Investment Authority.
The Malaysian bank’s latest bond — part of the bank’s $5 billion euro medium-term note programme — has a yield of 1.788% and coupon of 3.088%.
The last Malaysian financial institution to raise a dollar note over the issuance value of $100 million this year was AmBank Bank Export-Import Bank of Malaysia. In February, Mexim raised a $300 million five-year sukuk — the first dollar-denominated Islamic bond of the year — while AmBank sold a $400 million five-year bond in June.
Comparables
The nearest comparables for RHB’s BBB+ rated offering are AmBank’s outstanding notes maturing July 2019 (Baa1/BBB+), which were trading at a G-spread of 139bp prior to announcement, according to a source familiar with the matter.
RHB’s existing paper expiring in May 2017, which was trading at a G-spread of 87bp was also used as a comparable, added the source.
“Although we consider US dollar Malaysian bank valuations stretched versus higher-rated Chinese banks and despite some uncertainty created by RHB Capital’s pending merger, we still think today’s deal will perform,” said a source. “That’s especially the case given the scarcity of Malaysian US dollar paper and this deal’s small size — with the benefits of Asean diversification.”
Investors were particularly keen on purchasing RHB’s bonds, steering away from Mainland names as highlighted by the weekend’s political demonstrations in Hong Kong, which have caused China credit default swaps — which insures bondholders against non-payment — to trade 11bp wider on Monday.
In the first half of 2014 RHB Capital posted net-profit after tax of M$1.0 billion, an increase of 31% year-on-year, with its Basel III Tier 1 ratio at 11.4% versus 11.6% last December, according to its latest financial statements.
Bank of America Merrill Lynch, Deutsche Bank and RHB Investment Bank were the joint bookrunners of RHB’s deal.
