Joint-leads JPMorgan and Morgan Stanley completed a lower tier 2 deal for Wing Hang Bank yesterday (Wednesday), bringing pricing inside guidance and marginally lifting the issue size. A $1 billion plus order book was registered for the deal, but since the bank is using proceeds to complete its acquisition of Chekiang First Bank, it decided to cap the final amount at $275 million, just $25 million over the base size.
Having being marketed at a spread of 180 to 185bp over Treasuries, the 10 non-call five deal was priced at 175bp over on an issue price of 99.659% and coupon of 5.25%. This equates to a yield of 5.326% or 126bp over Libor. Fees came to 50 cents.
A total of 122 investors participated, of whom 52% came from Hong Kong, 27% Korea, 20% Europe and 1% Korea. By investor type, the book split 34% banks, 33% asset managers, 25% private banks and 8% insurance companies.
One of the most striking aspects of the Baa2 rated deal is the lesser role played by private banking demand compared to earlier subordinated debt deals this year. Some attribute this to the fact that at 5.326%, Wing Hang does not offer a classic yield play.
But market conditions have also changed since the summer and bankers say retail investors have become a little gun shy. As one puts it, "Investors don't like the volatility in the Treasury markets and a lot got caught out by the sell-off during August. They didn't seem to realise what effect this would have on all the European perpetual issues they'd been buying, which traded down through par."
Nevertheless Wing Hang's rarity value and the momentum generated by its acquisition of Chekiang from Mizuho Corporate Bank, appears to have captured investors' imagination. The bank has said it is on the look out for new acquisitions and while this will put pressure on its capital ratios and likely necessitate more debt, the announcement has been viewed positively.
Having purchased Chekiang at only 1.22 times book, Wing Hang has signalled that it does not intend to fulfill its ambitions by overpaying and analysts believe further expansion is a positive move for Hong Kong's overcrowded banking sector.
Many are also said to have been impressed by CFO Frank Wang, who is on secondment from Bank of New York, one of the bank's two major shareholders. The other is the Fung family.
It is, therefore, not that surprising that Wing Hang was able to price at a tight premium to Bank of East Asia (BEA), despite the latter's much larger asset base. BEA and Wing Hang share the same rating from Moody's and at the time of pricing, the former's 7.5% February 2006 transaction was trading at 105bp over Libor.
Taking into account the two-and-a-half year maturity differential, said to be worth about 15bp to 20bp, Wing Hang's deal has come flat to a 5bp premium. It is significantly through, its other main comparable, a 7.5% March 2006 transaction by Dah Sing Bank, which was said to be trading at about 150bp over Libor.
As a result of the deal and post merger, Wing Hang will still be strongly capitalised, with an overall CAR of about 14.9% of which tier 1 will comprise 10.1%. Had the bank not been able to complete the deal, JPMorgan had also agreed to provide bridge capital, one of Wing Hang's pre-conditions in selecting lead managers for the deal. Morgan Stanley secured its place as the M&A advisor.
