China’s largest listed brokerage, Citic Securities, is planning to sell a benchmark-sized dollar bond, guaranteed by Bank of China (Macau), as early as next week.
It will launch a roadshow in Hong Kong and Singapore on Monday and Tuesday, and will conjunctively meet with European investors in London, with the help of its army of 11 bookrunners.
Treasury officials at Citic Securities could not confirm a targeted size for the deal, though they said it would be “benchmark-sized”.
“It’s not really a surprise to the market that we’re looking to issue now – we’ve already gone through corporate governance procedures at the end of last year, getting approval for an issue,” said one source close to Citic Securities. “It’s been something we’ve been thinking about for a while.”
Despite receiving a credit rating of ‘BBB+’ from Standard & Poor’s (S&P) in October 2012, the brokerage sought a credit guarantee from Bank of China (Macau) to generate stronger investor confidence, given that much of Citic Securities’ assets are onshore, the source added.
S&P has rated the notes ‘A’.
“We always intended to be structured to manage the costs of funding, so working with the underwriters to explore and various alternatives helped us to come back with a decision to receive a credit guarantee,” said the source. “We’re an onshore company and the issue is offshore. We explored ideas and this could help with a debut.”
Asiamoney PLUS exclusively reported in August that the brokerage was seeking a credit rating for a possible offshore renminbi bond issue. However, the need for dollar funding has driven Citic Securities to the USD market.
Bankers at bookrunner banks say the bond’s proceeds will be used to meet business and operational needs for both the parent and its subsidiaries, yet some also suspect capital could be used to recoup funding for its acquisition of CLSA Asia Pacific Markets.
“They will essentially use the proceeds for general purposes...but there is an acquisition and the money is fungible, and so the use of proceeds may be explained with that,” said one syndicate banker.
Citic Securities announced its acquisition for CLSA in July, becoming the first Chinese financial institution to buy an international brokerage. Citic Securities initially purchased a 19.9% stake in Hong Kong-based CLSA from Crédit Agricole and followed up with the remaining 80% in the autumn, paying a total US$1.2 billion.
Sources at bookrunner banks say that the timing for the deal could be right, given the favourable US dollar funding environment which has helped issuers sell debt at record-low prices. Additionally, investors have been keen for non-bank financial credits.
“There’s interest in financial names for diversification and the maturity of these issues, and they’re not banks,” said the syndicate banker, adding that new Basel III rules have altered the landscape for bank bonds, driving investors towards non-banking names. “You can see that European banks have had a much tougher time with the financial crisis and these Asian guys have not been impacted to that extent. So in this environment there’s still a sense of growth and investors are looking to Asian names for diversification and strong fundamentals.”
On March 5, Asian insurance company AIA made its own capital markets debut, raising US$500 million across a five-year tranche priced 110 basis points (bp) over Treasuries and a 10-year tranche at 130bp over Treasuries. Despite investors grumbles over the 10-year pricing, the issuer still received US$1.5 billion of orders for the five-year tranche and US$1.2 billion for the 10-year, Asiamoney PLUS’ sister publication Euroweek Asia reported.
And on April 18, insurer Aeges Capital (Asia) sold a debut US$250 million 10-year bond. It pays a coupon of 4.125%.
Debt capital markets bankers expect other non-banks to follow Citic Securities’ bond, and its success may even pave the way for other Chinese brokerages to follow.
“In general the market is extremely buoyant and there is a good pipeline – there’s definitely enough appetite for good-quality names,” said one debt banker close to the deal. “Even if you look at the CNH market you’re seeing high yield names coming, and there still remains appetite. I wouldn’t be surprised if other brokers were to follow Citic – and we’re clearly seeing interest from other Asian financial companies.”
The Reg-S bond will be issued by Citic Securities Finance, a wholly owned subsidiary of Citic Securities.
Citic Securities International, Bank of China, Citi, HSBC and Standard Chartered have been named global coordinators. They will be joined by bookrunners ABC International, Bank of America-Merrill Lynch, Barclays, Crédit Agricole, Deutsche Bank and J.P. Morgan.