Malaysia's sixth largest bank by assets, AmBank has issued an upsized $200 million hybrid tier-1 structured as a perpetual non-call 10-year share offering. AmMerchant Bank was the principal adviser, joint lead manager and joint book-runner for the Ba2/BB/BB rated issue. BNP Paribas and Credit Suisse were joint lead managers and joint book-runners.
Having been initially marketed to investors at an issue size of $150 million, the Reg-S deal was increased by $50 million after building a book worth $325 million following roadshows in Hong Kong and London.
Having shopped the deal to investors at a range of 187.5bp to 200bp over swaps, the deal was priced at the tight end of initial guidance selling at par on a semi-annual coupon of 6.770% to yield at 190bp over Libor. The deal is callable in 2016 at par, and if not called the coupon has a 100bp step-up.
Fees are still being negotiated.
This is AmBank's first foray into the international debt market and represents only the second Malaysian bank to issue a hybrid tier-1 deal following Southern Bank's $200 million deal last October.
Southern Bank's outstanding hybrid tier 1 deal, which also carries a perpetual non-call ten-year structure, is considered the primary benchmark. That deal priced at 153bp over swaps, but was quoted at 130bp over at time of pricing. However, with speculation that Bumi Commerce bank will be offering a bid for Southern Bank, the current levels are considered to be artificially tight. Southern Bank carries a similar rating to AmBank, but at Ba2/BB+ is rated one level higher by S&P.
The new deal attracted 40 accounts, with 74% of the book staying in Asia and the remaining 26% heading to Europe. In terms of investor type, banks were the primary buyers taking 49% of the total allocations; asset managers bought 28%, private banks 9% and 14% went to other accounts.
Investment bankers say that AmBank wanted to issue a hybrid tier-1 deal in order to strengthen the capital base of the bank.
Although AmBank's asset quality is still considered relatively weak in comparison to that of the Malaysian banking sector's average, it has improved markedly following its merger with sister company, AmFinance, last June. The bank's non-performing loan (NPL) ratios have improved from 19.6% gross and 17.5% net in March 2005 as a stand alone bank, to 13.6% gross and 10% net following the merger. The Malaysian gross mean average currently sits at around 6%.
As of September 2005, AmBank's total capital adequacy ratio (CAR) was 10.5%, and had a tier-1 ratio of 6%. Although well within the regulatory minimum, both are below the Malaysian banking industries mean average.
Over the next two years, Ambank is expected to bolster its capital base with total capital and tier-1 ratios of 12% and 7.5%, respectively.
The preference share will rank pari passu with all outstanding preference share and hybrid tier-1 capital instruments on a consolidated basis.
In its most recent ratings report Fitch upgraded AmBank's outlook to positive following the merger with AmFinance, stating that, "the newly merged Ambank is considerably superior to the standalone bank in almost all respects with an improved business and financial profile. Its business is now more oriented towards consumer banking (80% of total loans) and thanks to the contribution from the erstwhile financing arm, the merged banks profitability is significantly better."
Further adding that "in common with the characteristics of tier-1 instruments, the dividends on the preference shares may be restricted under certain circumstances, notably if the bank's capital ratios go below the regulatory minimum or its distributable reserves, from which the dividends are paid become insufficient. The fact that the preference shares are ranked two notches lower than the banks senior rating reflects such risks."
Ambank is rated Baa2/BBB-/BBB- at the senior level.
AmBank is a wholly owned subsidiary of AMMB Holdings.