Rating: Baa2/BBB (Moody's/Fitch)
Maturity: November 17, 2009
Issue price: 99.582
Spread at re-offer: 38bp over mid-swaps; 82bp over the 3.375% October 2009 UST
Launched: Wednesday November 10
Joint books: HSBC, UBS
Joint lead: Citic
HSBC ? Citic Ka Wah successfully tapped the window that presented itself this week for Asian borrowers to raise competitive long term funding.
Spreads are close to all-time lows for most Asian asset classes and investors are keen to put cash to work. Ka Wah has traditionally raised money through the Hong Kong dollar CD market and this is their first US dollar-denominated senior bond issue.
They have wisely taken advantage of the opportunity to diversify and make the most of the strong credit markets.
We approached the market with initial guidance of US Treasuries plus 82bp, which equates to mid- swaps plus 35bp-40bp, on Monday and worked with that until Wednesday morning when we refined guidance to 38bp-40bp and then priced at 38bp.
The credit story was well received and the pricing dynamic was attractive to the borrower. Ka Wah is the number six bank in Hong Kong by asset size, so it is a middle tier bank.
It benefits from strong ownership, being 54% owned by Citic Beijing and is excellently positioned to take advantage of the growth in cross-border business with China as the Closer Economic Partnership Agreement and China's entry into World Trade Organisation take off.
The main comparables for Ka Wah are Korea's Hana Bank, rated Baa2/BBB+, and Woori Bank, rated Baa1/BBB. However, Ka Wah is smaller in the context of its domestic market, and as a result, arguably less strategically important for Hong Kong than Woori and Hana are in Korea, where they are the number two and three banks by asset size respectively.
Ka Wah also has a lower rating at Baa2/BBB (Fitch). However, Hana's March 2009 bond was bid at Libor plus 37bp on Wednesday and Woori's September 2008s bid at 39bp and the Ka Wah deal priced at 35.5bp on an asset swapped basis, through the existing secondary levels and substantially tighter than the theoretical five year new issue pricing for the Korean institutions, which is a notable achievement.
The final order book was $450m in size. It was not the heaviest of oversubscriptions, but was of high quality. The bond priced at US Treasuries plus 82bp and was bid at 82bp yesterday (Thursday) in light flows ? the proof of the pudding, as they say, is in the eating.
At the end of the day, Ka Wah achieved a tightly priced transaction. Some relative value investors and faster money accounts may not have participated on that basis, but the objective was to secure the lowest pricing for Ka Wah rather than generate an unnecessarily inflated order book.
Nonetheless, the positioning of Ka Wah as a China play coupled with its strict regulation as a Hong Kong bank under the Hong Kong Monetary Authority is an enticing combination for the investor base.
We are happy with the transaction, which has achieved aggressive pricing and bedded down well in the secondary market. Ka Wah wanted swift execution, tight pricing and to diversify from Hong Kong dollars ? they have achieved that.
Investors from Hong Kong bought 39% of the deal; Singapore 34%; China 20%; Korea 6% and Europe 1%. Banks accounted for 79% of the book; asset managers 11%; corporates 6%; insurers 2% and private banks 2%. The bond was sold to 40 accounts.
UBS ? You need to see this type of deal in isolation and you can't expect every single deal to be significantly oversubscribed when you are dealing with different sets of investors.
Here we are dealing with a Hong Kong bank that has issued heavily in Hong Kong dollars. Some people are full on the name and some find triple-B bank paper priced in the mid-30s too expensive.
However, I am pleased with the deal. I thought it would be a challenge because we wanted to achieve the best price for the issuer and we knew we would have to canvass the whole market.
For Ka Wah to achieve a price of mid-swaps plus 38bp when this deal was announced in the run-up to non-farm payrolls is a great result.
It wasn't an easy sell but we got good distribution and to print a 38bp ticket is great.