Asia sees a melting pot of dollar bonds

China Citic Bank sells Asia’s first Additional Tier 1 bond, while Chalco raises its second perpetual note and State Bank of India offers a dual-tranche deal.

April has seen a wide assortment of dollar-denominated bonds with the latest being Asia’s first Additional Tier 1 bond from China Citic Bank, Aluminum Corporation of China’s (Chalco) senior perpetual note and State Bank of India’s dual-tranche transaction – all of which were issued on Thursday.

Dollar bonds reached $13.7 billion with 16 deals in Asia ex-Japan in April so far, most of which came in the second week of the month – $7.1 billion with nine transactions, according to Dealogic data.

The week of April 7 saw sovereigns, financials and corporates tapping the dollar market for funding in the form of Basel III-compliant bonds, dual-tranche transactions, perpetual notes as well as unrated deals. Also, it is the second busiest week after the week of January 6 this year, which saw a total volume of $12 billion from 15 deals, highlights the data provider.

“It started last week with Sinopec, and there has been a flood of new announcements ever since, and we expect this to continue,” said a Hong Kong-based high-grade syndicate head to FinanceAsia. “Sentiment is very bullish right now thanks to relatively low rates environment plus recently announced FOMC minutes.”

The Asian debt capital market has been fairing relatively well since the beginning of April, supported by the low interest rate environment. Debt syndicate bankers note that yields are still at manageable levels given that 10-year US Treasuries touched 3.028% at end-2013, and they anticipate a rush of deals before yields start to trend back up beyond the 3% level later this year.

Analysts at Morgan Stanley, for example, expect 10-year USTs will hit 3.3% by end-2014 while Barclays analysts have a year-end forecast of 3.4%. Currently, yields are hovering around 2.65%, according to Bloomberg.

Additionally, minutes were released from the Federal Open Market Committee’s March meeting on Wednesday, where members discussed keeping interest rates low as long as inflation remained less than 2% and didn’t elaborate on an accelerated time frame for raising rates. This reinforces the positive sentiment.

The US Commerce Department’s personal consumption expenditures price index, which is the Fed’s favoured measure of inflation, was up 0.9% in February from a year earlier. The Labor Department’s consumer-price index, an alternative measure, was up 1.1%.

Busy pipeline

As a result, DCM bankers expect an active pipeline of dollar bonds into the week of April 14 as borrowers make use of the favourable window before Easter holidays, which begin on April 18 in Hong Kong.

Indonesia-based Sri Rejeki Isman, one of the largest vertically integrated textile manufacturers in Southeast Asia, is marketing a $300 million five-year note callable in the third year, according to sources familiar with the matter. This is expected to be priced on Friday.

Additionally, Tencent, Korea Land and Housing Corp and Woori Bank have mandated banks to arrange a series of fixed-income investor meetings globally commencing on April 14. Dollar-denominated bond offerings could follow after subject to market conditions.

Tencent, one of China’s largest and most used internet service portals, recently established a medium-term note programme and has mandated Barclays, Deutsche Bank and JPMorgan to arrange the meetings.

Korea Land and Housing Corp, South Korea’s state-owned housing company, has mandated Bank of America Merrill Lynch, Crédit Agricole, Deutsche Bank, JPMorgan and The Royal Bank of Scotland. Woori Bank has mandated Barclays, BNP Paribas, BofA Merrill, Crédit Agricole, HSBC, JPMorgan and Nomura to arrange the meetings.

Some syndicate bankers expect second-quarter G3 (dollar, euro and yen) bond volumes in Asia ex-Japan to touch close to $50 billion, compared to 2013’s $42 billion during the same period.

China Citic Bank’s bond

China Citic Bank raised a $300 million perpetual note that is callable in five years on Thursday – Asia’s first Basel III dollar-denominated Additional Tier 1 bond.

Being the first in Asia, sources familiar with the deal told FinanceAsia that it was not easy to price the Reg-S transaction. They didn’t want to see a similar adverse reaction that met ICBC’s deal last October when the bank raised the region’s first Basel III-compliant Tier 2 bond, which immediately underperformed on the first day of trading.

Credit analysts from Standard Chartered and Morgan Stanley highlighted that a fair value level of 7.6%-7.75% and 7.5%-8% respectively would be reasonable for Citic Bank’s AT1 notes.

The bookrunners took that into consideration and launched Citic Bank’s bond at an initial guidance of around the 7.75% area. The transaction managed to price 50bp tighter at 7.25%, helped by bullish market sentiment.

The nearest comparables were the bank’s existing Tier 2 papers, which were trading at Treasuries plus 101bp, or a yield of 5.77%. A premium – obtained by using the spread differential between existing Tier 2 and AT1 notes of European financial institutions – was added to that.

For example, the spread differential for Barclays’ Tier 1 and AT1 notes was 185bp at the time of pricing, Crédit Agricole’s 146bp and Société Générale’s 230bp.

Citic Bank’s notes, which received a whopping order book of $5.7 billion from more than 260 accounts – most of which are from institutional investors – are fairing relatively well in secondary markets, having traded up to 101.5 shortly after being priced.

Citi, HSBC and RBS were the joint global coordinators and bookrunners of Citic’s deal. Other bookrunners include ANZ, BBVA and CLSA.

Also on Thursday, Chalco priced an unrated $400 million perpetual bond that is callable in the third year while SBI raised a $1.25 billion dual-tranche dollar note – selling a $750 million five-year and $500 million 10-year tranche.

HSBC, ANZ and UBS were the joint global coordinators and bookrunners of Chalco’s deal. Other bookrunners include DBS and Natixis.

Barclays, BofA Merrill, BNP Paribas, JPMorgan, SBI Capital Markets, Standard Chartered and UBS are joint bookrunners of SBI’s transaction.


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