Ayala and RHB tap domestic bond markets

While the G3 bond markets remain closed, domestic markets are powering ahead with Ayala raising $140 million in the Philippines and Malaysia's RHB raising $596 million.
Ayala Corporation, the Philippines' largest and oldest conglomerate, raised Ps6 billion ($140 million) yesterday through a five-year fixed-rate bond offer. The deal is a follow-on transaction of the companyÆs Ps7 billion five-year deal in 2004, which Ayala pre-paid prior to maturity in October to take advantage of lower interest rates. The main objective of this latest offering was to recapture those investors who participated in the previous transaction.

ôAyala didnÆt strictly need the funds, since the company ended the year with $500 million in cash," says a source close to the deal. "However, this latest transaction was crucial in order for Ayala to hang on to its investor base, which it might have lost had it not offered an alternative outlet.ö

Ayala Corporation has played an important role in attempting to stimulate the Philippines debt capital markets so that local corporations can access both issue size and longer maturities without going offshore. The companyÆs Ps7 billion offering in 2004 marked the largest corporate debt offering of 2004.

The deal exclusively targeted domestic investors and priced at 39bp over PDST-R2 (Philippine Dealing System Treasury Reference Rate), marking the first public issue to price against this benchmark. The deal will also be the first issue to be listed on the new Philippines fixed-income exchange. Foreign investors have traditionally shunned the Philippines domestic bond market due to limited aftermarket trading, but the new exchange should help bring them on board by addressing the liquidity problem.

Bank of the Philippine Islands, First Metro Investment, Banco de Oro, ING, Standard Chartered and Landbank of the Philippines arranged the deal.

ôThe deal priced tight, using a new benchmark. Considering there are so many new products in the market that are much more favourably taxed, this was a major achievement,ö continues the source.

Meanwhile, MalaysiaÆs RHB Bank Bhd issued M$2 billion ($596 million) in subordinated debt on Friday last week as part of the institutionÆs medium-term note programme of M$3 billion, demonstrating that MalaysiaÆs domestic market can absorb sizeable deals.

The transaction was managed by RHB Investment Bank, with ABN AMRO and Citi acting as co-managers.

The transaction represents the largest subordinated debt issued by a financial institution in MalaysiaÆs domestic market. Up until now, this accolade was held by Public Bank Bhd with its M$1 billion offering.

RHB's deal was rated BBB- by Standard and PoorÆs and Fitch, and A1 by MalaysiaÆs RAM Rating Services.

The deal was issued in two tranches. The first M$1.3 billion tranche offered a 10-year non-call-five maturity, and priced with a coupon of 5% at the wide end of the 4.8%-5% guidance. The second M$700 million tranche, a 15-year non-call-10, priced at 5.5%, with a step-up rate of 50bp per year until the end of the redeemable period. Guidance here had been set at 5.3%

ôThe rates available to issuers are relatively attractive at this time, and investors participated despite the negative headline news globally,ö says one source. One selling point was the bankÆs group-wide ôstrategic transformation programmeö, which is essentially a re-organisation of the whole of RHB along universal banking lines.

ôThis means that investors are gaining exposure to a better organised company and can reap the synergies of the entire operating group, as opposed to the departments all operating in silos. ItÆs a better integrated model.ö

The deal closed 1.4 times oversubscribed, with 10% of the bonds selling to international banks in Hong Kong and Singapore, reflecting offshore demand for domestic offerings despite the turmoil in international markets. ôThis was an intended strategy in order to get RHB on the radar screen of offshore investors,ö adds the source.
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