ANZ has issued the first ever Basel III-compliant renminbi bond from a foreign company, reinforcing Hong Kong as the premier offshore hub as mainland China comes off a difficult week.
The Australian bank’s Rmb2.5 billion ($400 million) tier-2 subordinated note in Hong Kong – a 10-year non-call five tier-2 bond at a yield of 4.75% – sets the stage for more such Basel III instruments.
It was priced late on Wednesday night, in a week when China announced a 24-year low growth rate of 7.4% and the Shanghai Composite index dropped 7.7%.
Shanghai’s share plunge was triggered by a tightening in the regulations governing margin trading, while there are also growing investor concerns over the country’s rising credit default risks.
However, bankers and investors in renminbi business still hold a positive view on renminbi businesses and value Hong Kong’s status as the largest offshore renminbi hub.
“For those who are looking for opportunities to raise funds in renminbi, this [Hong Kong] is the place,” said Norman Chan, chief executive of Hong Kong Monetary Authority at the Asian Financial Forum on Tuesday.
The total insurance of renminbi bonds in Hong Kong in the first 10 months of 2014 was Rmb167 billion, almost a year-to-date jump of 70% from 2013, the regulator’s data shows.
“Hong Kong has a lot of advantages in doing renminbi products, like people. Hong Kong has the largest renminbi product-related talents,” said Ding Chen, chief executive at CSOP Asset Management. “Also, the policy makers [in Hong Kong] understand Beijing’s thoughts.”
The recent volatility in the currency’s exchange rate versus US Dollar will not decrease the use of renminbi but bring new opportunities.
“In the last decade, the renminbi appreciation and the expectation of appreciation has helped the renminbi transactions and the sentiment. At the same time we have seen little borrowing in the market,” said He Guangbei, vice-chairman and chief executive at Bank of China (Hong Kong).
“Last year the borrowing of renminbi jumped so much,” He said, underlining the new business opportunities after the one-way appreciation of the currency ends.
The outstanding amount of renminbi loans in Hong Kong stood at Rmb168 billion at end-October, more than 150 times the amount in 2010.
The structure of ANZ’s bond is similar to those issued by China Construction Bank in November.
The only difference is full and permanent cancellation will occur if the Australian Prudential Regulation Authority - not China Banking Regulatory Commission - deems the issuer non-viable or if a public sector capital injection is necessary, without which the bank would become non-viable.
A Basel III bond has loss-absorption features; triggers that could see investors lose all their money if regulators decide the bank cannot survive.
The book received Rmb3.5 billion of orders from 71 accounts, enabling the issuer and bookrunners to tighten 12.5bp from the price guidance of 4.875%.
Investors include insurers (53%), fund managers (36%), banks (7%), private banks (3%) and hedge funds (1%). Geographically, Taiwan investors bought 49%, Hong Kong 36%, Singapore 14% and others 1%.
ANZ will pay a fixed coupon for the first five years and, if not called, the coupon will be reset and switch to a floating rate of one-year CNH Hibor plus a spread of 82.7bp for its remaining five years.
The issuance will be rated at A3/BBB+/A+ (Moody’s/S&P/Fitch). The issuer is rated at Aa2/AA-/A+.
ANZ and HSBC were joint global coordinators for the deal with CCB International, ICBC Singapore and Standard Chartered acting as joint book runners.