ANZ dim sum

ANZ taps arbitrage opportunity with London dim sum

More European and US borrowers could follow ANZ in tapping the dim sum market as swaps move in their favour.
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ANZ: Returning to the dim sum market to exploit arbitrage opportunity
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<div style="text-align: left;"> ANZ: Returning to the dim sum market to exploit arbitrage opportunity </div>

Australia and New Zealand Banking Group (ANZ) priced a London-listed Rmb1 billion ($157 million) three-year offshore renminbi bond on Wednesday night, swapping the proceeds to US dollars.

The bonds were priced at par to yield 2.9%. The proceeds were swapped to dollars at Libor plus 90bp, which is roughly flat to where ANZ’s US dollar funding curve is, though some say its funding level is closer to Libor plus 100bp.

“It makes sense for them to do this from a cost perspective,” said one person away from the deal.

Earlier this year, more issuers had raised renminbi with the intention of remitting the funds onshore or keeping them in renminbi offshore. However, swaps have moved in favour of companies that need US dollar and euro funding, so a few more could jump on the bandwagon and take advantage of the arbitrage opportunity — while it remains.

“We expect that more borrowers will be keen to swap and wanted to show them that it can be done and makes sense,” said one source. “However, the swaps move around quite a lot and the bid-offer spread is 25bp, so it’s a pretty illiquid market,” he added.

The bonds were listed on the London Stock Exchange. This was ANZ’s second dim sum issue, but its first time going for a London listing and benchmark size. The deal was self-led.

In terms of pricing, ANZ’s dim sum came 10bp tighter than ICBC’s Rmb1 billion three-year dim sum, which priced at a yield of 3% earlier this week. Some felt the Aussie bank achieved tight pricing, but others felt it ought to have come tighter since ANZ is rated Aa2/AA-/AA-, two notches above ICBC. Its latest dim sum came 10bp inside of HSBC, which had issued its London-listed three-year offshore renminbi bond at a yield of 3% in April.

The deal attracted demand of nearly Rmb1.5 billion, though the final update given to investors quoted an order book of Rmb900 million, which means that Rmb600 million worth of orders came fairly late in the day. The initial guidance was at the 2.9% area and the final pricing of 2.9% did not budge much from initial guidance, indicating that there wasn’t enough demand to tighten guidance, as is usually the case.

Asian investors were allocated 61%, European investors 29% and Middle Eastern investors 10%. Banks were allocated the greatest portion (37%), followed by central banks (25%), fund managers (24%) and private banks (14%).

Previously, ANZ had issued a small Rmb200 million dim sum at 1.45%, but that deal rode on expectations that the renminbi would strengthen — and clearly those expectations have dimmed since then.

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