For the latter half of 2012, the Asian dollar market was the place bank borrowers went if they wanted to raise subordinated debt at competitive levels. With private bank investors hungry for higher yielding assets, the books were big and sticky — bankers will attest that you could pretty much throw anything at the market and still be able to bring pricing in by at least 50bp.
But recently even Asian names have begun to struggle as investors struggle with indigestion and, in the wake of SNS Reaal’s great sub debt wipe out, begin to question what they should be being paid for subordination. The private bank bid is no longer the bottomless pit it once was.
Two weeks ago, while surveying the fallout from SNS’s nationalisation, bankers were calling for a strong name to re-open the Asian Reg S market. Aberdeen Asset Management is not well known — but it is rare, and perhaps a more interesting proposition than another super-tight perp from a European insurer or bank.
That will count in its favour, but the issuer itself as well as sole lead and structuring adviser Bank of America Merrill Lynch will need to make sure they get the structure and the execution process right.
Private bank investors have pushed back on the fixed for life coupon structures used by recent issuers in the Reg S market like Prudential plc and Axa. Both deals have performed poorly in the secondary market, and although they have staged a tentative recovery of late, the message is clear — Asian private bank investors will no longer swallow whatever sales teams try to stuff down their throats.
Aberdeen is planning to print a perp, so a fixed for life coupon could well be on the cards. In the long run, whether they use that structure or not is unlikely to matter, because the credit would most likely price outside both Prudential and Axa.
But the deal will have to offer value to an investor base whose passion for sub debt has markedly cooled in recent weeks. Whether or not it is successful could have a big impact on the capital raising plans of other European financial institutions.