Asia dollar bonds hit $27bn monthly record

Woori Bank and Cnooc debt offerings have pushed Asia ex-Japan’s dollar volumes to an all-time monthly high.

Woori Bank’s $1 billion 10-year Basel III-compliant note and Cnooc’s $4 billion triple-tranche bond sold on Wednesday have boosted Asia ex-Japan’s dollar volumes to a record-breaking monthly high as issuers leveraged on favourable market conditions post-blackout period in February and March.

According to Dealogic data, Asia ex-Japan dollar-denominated bond volume have reached $26.8 billion so far for the month of April and is 7.5% higher than the last record-breaking monthly number of $25 billion achieved in January this year.

Year-to-date, Woori and Cnooc's transactions have also pushed dollar-denominated DCM volume in Asia ex- Japan to $67.7 billion, the highest year-to-date level on record and up on the previous level raised in 2013 ($63.2 billion), highlights the data provider. 

The months of February and March were slow months for Asian bond issuers as it was earnings season, which led to a fairly subdued pipeline, say debt capital market bankers. This combined with market volatility stemming from the Ukraine crisis, which was unfolding back then, sent jitters across global markets. 

“After slow months in terms of Asia supply in February and in March, it was clear April was always going to be a month of heavy issuance,” said Alan Roch, head of debt syndicate at Royal Bank of Scotland to FinanceAsia. “It’s fair to say that it is surpassing most expectations, and that with a stable rate environment and pent-up liquidity, supply has so far been taken down extremely well.”

This week is also the second highest record week for dollar-denominated transactions in 2014 ($9.4 billion) after the week of January 6, which saw a whopping $12 billion worth of deals, according to Dealogic data.

Only the first month into the second quarter, bond volumes have already more than exceeded DCM bankers’ expectations of a $50 billion quarter from Asia ex-Japan. The prediction is more than the $42 billion seen during the same quarter last year.

Ten-year US Treasury yields, currently hovering at 2.69% level, have been trading within a narrow band of 20bp – between 2.6% and 2.8% - since January, according to Bloomberg. The yield has risen from 1.81% a year ago, though it is still less than the average over the past decade of 3.46%.

First Korean Basel III bond

Woori Bank issued the first ever Basel III-compliant Tier 2 note from a Korean financial institution on Thursday morning, following the array of Asian banks that have tapped the bank capital space in recent months.

The $1 billion 10-year bond, which is Woori’s largest since 2007, received an order book of more than  $5 billion from more than 230 accounts. As a result of strong demand, the issuer was able to reduce  pricing by 30bp from an initial guidance area of Treasuries plus 237.5bp, according to a term sheet. The yield of the bond is 4.756%.

“This transaction sets an important precedent for other Korean names as well as the rest of Asia to come,” said a banker on the deal. “Woori seized a good execution window immediately following the Easter holidays.”

The nearest comparables for the Korean financial institution’s note were Mizuho and Sumitomo’s recently issued Basel III-compliant Tier 2 10-year bonds, which were trading at a G-spread of 170bp and 157bp respectively, which is 30bp and 48bp tighter than Woori’s senior subordinated notes. This indicates that a small premium was added to the Korean bank’s notes to take into account the less investor-friendly structure compared to Japanese bank capital offerings.

For example, Japan’s bank resolution framework aims to minimise any disruption to the financial system through early intervention and pre-emptive recapitalisation of solvent financial institutions. This is seen as the lowest cost resolution method and, as a result, is viewed positively by investors. Korea does not have this framework.

In 2007, Woori issued a $1 billion 30-year note at a yield of 6.208%.

Barclays, BNP Paribas, Bank of America Merrill Lynch, Crédit Agricole, HSBC, JPMorgan and Nomura were the joint bookrunners of Woori’s transaction.

Cnooc’s triple-tranche note

Cnooc raised a $4 billion triple-tranche bond, the second largest ever in Asia ex-Japan for 2014 after state-run China Petrochemical Corp’s $5 billion multi-tranche bond on April 2.

The bond – split between a $1.25 billion three-year tranche, $2.25 billion 10-year note and $500 million 30-year offering – was registered with the US Securities and Exchange Commission, enabling the debt to be sold to retail investors in the US.

The proceeds of the bond will be used for the repayment of all or part of outstanding borrowings and for general corporate purposes, according to a term sheet.

The nearest comparables for the transaction where Cnooc’s existing papers; including those expiring in 2016, 2018, 2023 and 2043, which were trading at a G-spread of 70bp, 103bp, 149bp and 145bp respectively, according to bankers close to the deal.

Cnooc’s three-, 10- and 30-year tranches ended up pricing at Treasuries plus 85bp, 160bp and 150bp respectively, which were 20bp, 25bp, 20bp tighter than their initial price guidance respectively, helped by strong US support.

“It’s a large credit and has an established curve, which enabled the new bond to be priced off its secondary curve,” said a Hong Kong-based investor at a US fund management firm. “It’s also considered high-quality, so it’s a good name to have.”

BOC International, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS were joint lead managers and bookrunners of the transaction.

¬ Haymarket Media Limited. All rights reserved.

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