Australia and New Zealand Banking Group is poised to become the first foreign bank to issue Basel III-compliant bonds denominated in offshore renminbi.
ANZ, Australia’s third-largest bank by market value, will meet investors in Hong Kong on Monday and in Singapore on Tuesday to market the issue.
ANZ and HSBC are joint global coordinators for the deal with CCB International, ICBC and Standard Chartered acting as joint book runners.
The new dim sum bonds will have a similar structure to those issued by China Construction Bank in November, according to a source familiar with the situation. This Rmb2 billion ($327 million) issue was a 10-year non-call five tier-2 bond and priced to yield 4.9%. It is currently trading on a yield of around 4.67%.
A Basel III bond has loss-absorption features, triggers that could see investors lose all their money if regulators decide the bank cannot survive.
ANZ is coming to the market with its Reg S dim sum deal at a time when Asian lenders are tapping the Hong Kong market for funds to boost their capital buffers. Many banks have issued Basel III bonds in dollars and two banks in renminbi.
Australia is among the countries in the region applying Basel III guidelines most strictly. By global standards, banks in Australia are well capitalised but the reported common equity tier-1 ratios of the top four Australian banks, including ANZ, are relatively low, according to a SNL Financial report in August.
ANZ’s common equity tier-1 ratio and total capital ratio were 8.8% and 12.2%, respectively, as of end-September.
Under the Basel regime, banks have until 2019 to have common equity tier-1 ratios of at least 7%, tier-1 capital ratios of at least 8.5%, total risk-based capital ratios of at least 10.5% and leverage ratios of at least 5%.
CNH opportunities
The Australian bank's decision to raise funds via the dim sum market reflects the renminbi's growing status as an international currency as more banks look to comply with Basel III.
“We have seen Chinese banks and their branches have ambitiously spread footprints in the offshore renminbi market. Non-Chinese banks are also quite keen on the region,” a source close to ANZ said.
He added that the issuer holds a positive long-term view of China and the renminbi business, despite growing investor concerns over the country’s rising credit default risks.
China and Australia are also engaging in high levels of bilateral trade. On November 17, Australia and China announced the conclusion of decade-long talks for a China-Australia Free Trade Agreement.
As a result, Chinese investments in Australia could grow sevenfold to $300 billion by 2020, Westpac Banking Corp has forecast.
China is Australia's largest trading partner, with goods and services exports exceeding $130 billion in 2013, accounting for more than a third of Australia’s total exports, according to China’s Ministry of Commerce.
“The bank feels it a good opportunity to get [more] exposure in the [offshore renminbi bond] market and to send a message that ANZ is focused on Asia,” the source said.
