Even for Chinese lenders, CNH has not been the weapon of choice as a means to build up their Basel III bank capital buffers.
ICBC Asia was the first to do such a deal, printing a Rmb1.5bn ($246m) 6% 2021 tier two in 2011. Only two other deals have followed. They were China Construction Bank’s Rmb2bn 4.9% 2024 last November and ICBC’s triple currency $5.7bn additional tier one (AT1) offering in December, which included a record-breaking Rmb12bn tranche.
“We were encouraged by the fact that CCB and ICBC have been consistently trading well in secondary,” said a Hong Kong-based syndicate banker on the deal. “And given that ANZ is rated better than the Chinese banks, we were sure the deal would succeed, even amid what’s been a slow start for CNH. With this, we proved we were right.”
Moody’s rates ANZ at Aa2, higher than ICBC Asia’s A2 and CCB’s A1.
The banker added that the issuer and leads were confident of the deal’s success even if there had been a strong pipeline in CNH, as they expected a dedicated pocket of money for such a reliable offshore credit’s first outing in Basel III dim sum.
“Its long tenor, high grade, good international credit, as well as its trailblazer status as a first Basel III dim sum bond outside of China, definitely attracted investors,” said a fixed income investor based in Hong Kong.
Strong book
Cheered on by strong feedback gathered from a two day roadshow in Hong Kong and Singapore earlier this week, joint global co-ordinators ANZ and HSBC announced initial price guidance for the 10 year non-call five trade at 4.875% area on the morning of January 21.
Demand was never going to be a problem as the anchor orders provided good momentum for the deal, which was covered shortly before lunchtime. The leads were subsequently able to tighten guidance to 4.75% in the late afternoon, which was where the deal was eventually sold at par. The final print was Rmb2.5bn, with 71 orders totalling Rmb3.5bn.
The deal was pitched against China Construction Bank’s (CCB) Rmb2bn 4.9% 10 year non-call five transaction, which was seen at 4.7%.
“I was actually surprised we ended up raising more than CCB amid much softer market conditions,” the banker said. “But what is more important is that the much bigger benchmark size did not come at the expense of a higher funding cost.”
RMB over dollars
Bankers on and away from the deal agreed that choosing renminbi was a smart move. Even though the coupon of the new deal is higher than the issuer’s outstanding $800m 4.5% 2024s, the economics work out differently when the latest deal is swapped into dollars.
ANZ’s 2024s were quoted at a G-spread of 215bp, with bankers adding another 5bp for curve adjustment. The new Rmb2.5bn, on the other hand, works out at a G-spread of 160bp when swapped into dollars. ANZ will be swapping the proceeds, confirmed a banker on the deal.
“The deal served the number one purpose of all issuers — to raise money as cheaply as possible,” said a syndicate banker on the trade. “Although in general CNH does not provide cost benefits compared to dollars, for this particular issuer, with such a good credit, CNH was 50bp-60bp cheaper than its dollar tier two 10 year bullet bond.”
The prospect of saving money while also tapping into a different investor base means the door is now open for other financials to raise Basel III funds in offshore renminbi.
“Before this deal came along, issuers may have thought the dollar is cheaper than CNH and had been relying on dollars unless they had other important reasons to pursue the Chinese currency,” said a banker on the trade.
“But this deal showed otherwise, and set an international precedent for other non-Chinese banks, especially from Singapore, South Korea and Hong Kong, that they can raise dollars cheaply from dim sum bonds while at the same time diversifing their way into the Chinese market.”
High quality
Bankers on the deal said that although the deal was not multiple times subscribed — something that is very common for dim sum bonds — this was because the orders came mostly from real money accounts rather than private banks, which tend to bid in highly inflated sizes.
In the end, 53% of the bonds went to insurance, followed by 36% to fund managers, 7% to banks and 1% to hedge funds. Private banks were only allocated 3%. Taiwan, which was where most of the bids from insurers came from, accounted for 49%, Hong Kong 36%, Singapore 14% and others 1%.
China Construction Bank International, ICBC Singapore and Standard Chartered were also joint bookrunners.