Barclays and BNP Paribas have priced a $200 million 10-year non-call five year lower tier 2 subordinated debt issue for Hong Leong Bank at the mid-range of the deal's revised indicative range.
Initially marketed to Asian investors at about 80bp over mid-swaps, guidance was cut to 75bp-80bp over before being unveiled to UK investors in London.
With an issue price of 99.848%, the notes carry a coupon of 5.25% to yield 78bp over five-year mid-swaps, or 121.7bp over five-year US Treasuries. Fees are 25bp.
The BBB/Baa2 rated (Fitch and Moody's) deal's most obvious comparison is Public Bank's 2014 callable 2009-subordinated bond. This deal was trading at 63bp over at time of pricing.
Some 5bp of the 15bp differential between the two can be accounted for by the one-year extension in maturity.
Public Bank also carries a Baa1 sub debt rating from Moody's, one notch higher than Hong Leong, and has a longer standing in the international debt markets.
Hong Leong's deal had a ceiling of $200 million based on its approval from the Malaysian Securities Commission, but had already secured orders worth $400 million before it left Asia. The final order book was quite strong, with the deal approximately 2.5 times oversubscribed with orders amounting to $500 million.
The issue attracted a broad range of investors, including banks - which made up the majority of the order book at 73.3%, asset managers claimed 10.7%, private banks 7.9%, hedge funds 3.8%, insurers 0.5% and the remaining 3.8% others.
In terms of geographic distribution, Asian investors accounted for the majority with 75% of the total book. Of that, Singapore accounted for 19%, Hong Kong accounted for 10%, with the remainder of Asia, including Malaysia, firming up the remaining 46%. Europe accounted for the left over 25%.
Hong Leong's new deal follows a similar issue from Public Bank last month that was heavily oversubscribed and left many accounts under allocated. As such Barclays and BNP utilized its momentum to garner strong demand for their own deal ahead of a heavy pipeline of Malaysian sub debt paper. Bumiputra Commerce Bank, Alliance Bank and Southern Bank are all rumored to be working on possible subordinated deals..
The deal is Hong Leong's debut offshore subordinated issue debt deal and the second from a Malaysian bank this year. It also shows that Hong Leong is becoming more proactive about its capital management.
At the end of 2004, the bank reported a total CAR of 19% of which tier 1 capital accounted for 17.5%. Since then it has begun to re-weight its ratios and rid itself of excess tier 1 capital through a buy-back of common stock and now through the sub debt offering. So far this year, the bank is believed to have bought back about 3.3% of its outstanding share capital.
Hong Leong is Malaysia's sixth largest banking group by assets and has three core businesses: personal financial services, business banking and treasury. The group has nearly 200 branches and business centers throughout Malaysia, plus branches in Singapore and Hong Kong.
