The flood of new bond issuance by Asian borrowers continued last week, and the deluge is set to continue during the next few days according to busy DCM bankers. Increased optimism about the global economic outlook could soon mean new borrowers will have to pay higher absolute rates, hence the urgency to lock in cheap funding now.
Equity and other risk markets were given a boost by the launch of further quantitative easing by US Fed chairman Bernanke, following the latest moves a week earlier by the European Central Bank to alleviate the eurozone crisis. In contrast, yields on safe-haven US and German government bonds moved higher, as fund managers switched to “risk-on” mode. In particular, higher US Treasury yields will mean higher new issue yields for borrowers whose deals are priced at a spread premium over them.
Kasikornbank, a leading Thai bank, launched its first US dollar issue on Thursday, close on the heels of Siam Commercial Bank which tapped its existing five-year issue a few days before, and ahead of Bangkok Bank’s planned issue this week.
Acting through its Hong Kong branch, Kasikornbank raised $500 million with a five-and-a-half-year deal, issued from the bank’s $2.5 billion euro medium-term note programme.
The issue pays a 3% semi-annual coupon, and was re-offered at 99.909n to yield 3.018% to a maturity date of March 20, 2018. That was equivalent to a spread of 235bp over US treasuries. Late on Friday, the notes were trading around the re-offer level.
The joint bookrunners, Citi and Standard Chartered approached investors during roadshows in Hong Kong and London at the beginning of the week with guidance of about 250bp over the US Treasury yield.
Siam Commercial Bank had tapped its 3.37% 2017 issue at 215bp, which provided an easy reference point. A new issue by Siam Commercial Bank with a (longer) five-and-a-half-year maturity would have needed to offer an additional 10bp for the curve and a further 10bp new issue premium, according to a banker. In fact, that is exactly where the Kasikornbank issue priced — flat to where SCB would need to issue at the same tenor.
Kasikornbank’s fixed-rate senior unsecured notes are rated A3 by Moody’s and one notch lower at BBB+ by Standard & Poor’s. They were sold under regulation S, which precluded participation by onshore US investors.
The issue attracted orders worth around $2.7 billion from 178 accounts. Most of the paper was placed in Asia (76%), and the remainder was sold to European investors.
More than half was distributed to asset managers (53%), 19% was bought by insurers, 12% by private banks, 11% by commercial banks and 5% by others.
The proceeds will be used for general company business.
Maybank subordinated notes
Also late on Thursday, Maybank issued $800 million of subordinated notes. Ostensibly with a 10-year tenor, they are callable after five years and qualify as tier-2 capital.
The order book was strong, totalling $4.5 billion from 200 accounts. It seems likely that the whole of the issue could easily have been placed in Asia. The region’s final allocation was 84%, and 16% was sold to Europe.
By investor type, asset managers took 55% of the issue, and 30% went to private banks and 15% to commercial banks.
Maybank is rated A3 by Moody’s and the equivalent A- by both Standard & Poor’s and Fitch. Their subordinated structure means the notes are inferior quality, so S&P and Fitch assigned them BBB+ ratings.
The notes rank below claims by Maybank’s depositors and senior creditors, but rank ahead of holders of the bank’s share capital and tier-1 capital securities. Although qualifying as regulatory capital, the notes do not contain any going-concern loss absorption features (such as coupon deferral), which, according to Fitch, would have resulted in a wider notching for the issue rating.
The yield spread difference between the senior and subordinated issues of leading Singapore banks, such OCBC and DBS is about 125bp. On that basis, with Maybank’s own senior paper (an existing 2016 issue) trading at 175bp earlier in the week, a fair price for a subordinated issue would seem to have been 300bp.
However, Malaysian bank issues are rare in the US dollar market and, in addition, they are invariably supported by a strong bid from domestic investors in both the primary and secondary markets, said a person familiar with the deal. Hence, the lead managers were able to approach investors with aggressive pricing at the outset, with initial guidance of 275bp. The final spread of 260bp was only 20bp wider than OCBC’S subordinated paper, which is rated three notches higher by the credit agencies.
The issue pays a 3.25% semi-annual coupon and was re-offered at 99.982 to yield 3.254% to the five-year call date of September 20, 2017.
Although the final maturity date is in 2022, the coupon will be reset at 260bp over the prevailing five-year US treasury yield if the issue isn’t called by Maybank in September 2017. The notes can also be redeemed early due to future regulatory changes.
The joint-bookrunners were HSBC, Maybank and Nomura. The registered S notes were sold from the bank’s $5 billion medium-term note programme, and the proceeds will be used for general banking and corporate purposes.
The notes weakened in trading late on Friday as investors prepare for more supply this week.
