The Baa2-rated bank is said to have mandated Barclays and UBS Warburg as joint-bookrunners for a 10-year deal, with ICBC as joint-lead. The three won a bidding war for aátransaction that many believeáwillátest the true strength and outer limits of demand foráGreater China credits.
It should, therefore, prove a tough but interesting challengeáfor the lead managers, althoughárivals have been quick to pointáout, all three have sizeable balance sheets to mop up excess paper.áThe main result of a competitive bidding process is said toáhave been extremely aggressive indicative pricing relative to comparables. In the face of bank capital experts who argue that 300bp would be an appropriate level, the deal is believed to have been won on a range of 265bp to 275bp over Treasuries.
Of the three outstanding transactions by local banks, Dao Heng's 7.75% January 2007 issue is trading at the tightest level, on a bid/offer spread of 183bp/175bp. This is followed by a Baa2-rated 7.5% February 2011 issue for Bank of East Asia (BoEA) on 213bp/203bp and an implied Baa2-rated 7.5% March 2011 issue for Dah Sing Bank on 250bp/240bp.
Compared to both banks, Citic Ka Wah (CKW) has a one notch lower rating and much smaller asset and deposit base. This means that an issue size of $250 million is relatively largeáin comparison to an asset base of $7.282 billion. BoEA, for example, has an asset base of $22 billion.
A lower deposit base (HK$47.8 billion) also means that the bank will not be able to rely on the domestic retail bid to the same extent as BoEA and Dah Sing, which both secured high levels of oversubscription for this very reason. Again BoEA's $550 million transaction saw retail investors allocated 45% of the overall book.
Were the deal to come at a market clearing level, on the other hand,áthere is no reason why it should proveáany less popular than every other deal from the Greater China region so far this year. It should also be boosted by the fact that it is likely to be investment grade rated, with a Baa3 rating one notch below the bank's senior rating.
So too, despite its small asset base, CKW has ambitions to be much larger and the current deal is seen as the precursor to the announcement of an acquisition. The bank has announced that it is looking for opportunities and only last week, HKCB Bank was forced to deny that it was in merger talks.
Under the control of a new management team and being progressively squeezed by the M&A activities of larger players, CKW would like to jump up the rankings from a small- to medium-sized lender. At the moment, analysts say it stands at number eight in the rankings of the Territory's 12ádomestic banks (ex Bank of China group and Standard Chartered).
It is also hoping to boost its asset base from HK$56.65 billion ($7.28 billion) as of FY00 to HK$60 billion in FY01. As ICEA Securities analyst Benny Yu puts it: "During 2000, CKW posted 16% loan growth, ranking it one of the best performers in the sector. This was underpinned by an 8.6% growth in general corporate loans, 26% in mortgages and 29.6% in trade finances."
He adds: "CKW is reforming into a professionally managed bank targeting at strong profitability growth, by means of both internal management and external acquisitions."
ICEA further expects ROE (return on equity) to rise to 11.6% in 2001 on track of achieving a long-term target of 15%. During 2000, the bank recorded a low ROE for its sector of only 9.61%.
Capital Adequacy, by contrast, stood at a fairly standard 17.12% by Hong KongÆs high standards, down from 19.16% in 1999 and 20.57% in 1998.áAnalysts say it presently stands atá15.3%.
Debt stands at HK$50.944 billion, while NPLs have dropped from 7.11% in 1999 to 5.18% in 2000.
Yet some analysts remain sceptical about the scale of opportunities for Hong Kong's smaller players. As one argues: "The smaller banks just won't survive because new loan growth is difficult and the bigger players are squeezing them out. HSBC and Hang Seng Bank account for 40% of the Territory's corporate and retail loans, Standard Chartered 12% and Bank of China 25%. That doesn't leave much room for the others."
And she adds: "We got quite excited by speculation that CKW's parent Citic Beijing wouldáfold CKW, Citic Industrial Bank and Citic Securities into a new listed holding company, Citic Financial Holdings. But this doesn't appear to have come to anything now that Citic Industrial Bank has applied for a domestic listing. With Citic Industrial dominating lending on the mainland, this leaves CKW looking for scraps in Hong Kong."
