Three Asian banks came to the dollar bond market last week, raising a total of $1.7 billion amid continued strong demand. Bangkok Bank raised $1.2 billion, Citic Bank $300 million and RHB Bank $200 million.
Citic and RHB both priced their deals late on Thursday night, two days after Bangkok Bank’s much bigger deal. Citic’s 10-year non-call five qualified as lower tier-2 capital and was issued off its $2 billion medium-term note programme.
The bonds offer a coupon of 3.875% and were priced at 99.824 to yield 3.9%, or 325bp over US Treasuries, after tightening guidance down from 350bp during the course of the day. Citic is rated Baa2 by Moody’s and BBB by Fitch. HSBC and Royal Bank of Scotland were joint global coordinators and joint bookrunners alongside BBVA and Nomura.
Asian investors bought 80% of the deal while the rest went to Europe (the deal was not marketed to onshore investors in the US). Fund managers took 63%, banks 18%, private banks 14% and insurers and others 5%. There was a $0.20 discount for private bank buyers.
RHB, which is rated A3 by Moody’s and BBB+ by Standard & Poor’s, was offering a coupon of 3.25% on its five-year deal and the bonds were priced at 101.944 to yield 2.8%, or 210bp over the current five-year Treasuries. Bank of America Merrill Lynch, Goldman Sachs and RHB were joint bookrunners.
Bangkok Bank became the fourth Thai borrower to tap the market in little more than a week, despite having been the first to launch a roadshow. Kasikornbank, PTT Global Chemical and Siam Commercial Bank (SCB) all beat it to market. As one banker on the deal noted: “We went from being the only Thai deal in the market to being at the tail end of a Thai flood.”
On the upside, Bangkok Bank was the only one of the banks raising 10-year money in the US, under Rule 144a, which meant that it enjoyed decent support and managed to perform better than its Thai peers — the $400 million five-and-a-half-year tranche came at 212.5bp over Treasuries, while the $800 million 10-year tranche came at 215bp.
Demand of around $7 billion was skewed toward the 10-year tranche, which attracted $4.6 billion of orders from 250 accounts, with 49% placed with investors in Asia, 16% went to Europe and the remaining 35% to the US. By account type, 60% went to fund managers, 20% to insurers, 12% to banks, 7% to private banks and 1% others.
The five-and-a-half-year tranche attracted $2.8 billion of orders from 200 accounts and was distributed in a similar way to the 10-year, with the bulk of the deal going to fund managers in Asia and the US.
Pricing of the five-year was roughly the same area as SCB, which went out with guidance of 230bp and tightened to 215bp, while KBank priced at 225bp. However, one banker said on Friday that both bonds met with a “slightly soft” reception and traded wider in the secondary market, while both of Bangkok Bank’s tranches traded roughly 15bp tighter despite some fears that they might have been priced too aggressively by Morgan Stanley, which was sole books on the deal.
Asian borrowers’ sudden rush to raise dollars is driven in part by the reduction in dollar liquidity at the end of last year as European lenders “pulled in their horns”, as one banker put it. But a much more important and secular shift, at least in the banking industry, is being caused by Basel III readiness.
In future, banks will need to ensure funding adequacy as well as capital adequacy, and that is creating a need to shore up dollar funding across the region.
Indeed, bank borrowers in China, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand have all tapped dollar markets during the past few weeks and there could be more to come as banks strive to avoid a repeat of the dollar funding crunch they experienced during the crisis.