Bank of China (Hong Kong) has returned to the Asian debt market with a $900 million tap of its existing 10-year 5.5% lower tier-2 subordinated bond that was launched and priced on February 4 this year.
The issue was the largest non-sovereign tap from Asia to date and increased the Reg-S/144A bond to $2.5 billion from $1.6 billion.
The initial price guidance was announced mid-afternoon Monday (Hong Kong time) at 176bp to 181bp over the equivalent 10-year US Treasury yield. This was later revised, at the close of London trading, to a final guidance of Treasuries plus 176bp. At the same time, the deal size was specified at between $600 million and $900 million.
Sources said the only relevant benchmark for the transaction was the existing BOCHK 2020 bond, which was trading at a yield spread of 166bp at the opening of Asian trading Monday.
The bonds were priced early Tuesday morning at a yield spread of 176bp, which was 4bp wider than where the existing notes were trading at the time of pricing. The tap was reoffered at 99.521, for a yield of 5.613%. At the close of Asian trading Tuesday the spread had tightened to 172bp.
When the bonds were first issued in early February, they were priced at a yield of 5.6%, which translated into a spread of 200bp over Treasuries at the time.
The backdrop for the pricing was far more favourable this time around. Over the weekend, news of the Eurozone's €30 billion bail-out package to Greece whetted investor appetite and was enough to spark a rally in risk assets across the board. In Asia, the iTraxx investment grade index opened the trading week 3bp to 5bp tighter.
The final order book amounted to $2.25 billion and included 188 accounts. Asia bought the bulk of the deal (59%), with offshore US investors taking 30% and European investors 11%. Fund managers and asset managers represented 58%, banks 22%, private banks 8%, insurance houses 5%, corporate investors 4% and other types of investors 3%.
With the $900 million tap, BOCHK will be able to repay the outstanding balance of an existing $2.5 billion credit facility that was provided by the parent company, BOC International, in December 2008.
"The initial $1.6 billion issuance of the bonds in February was used to repay $1.59 billion of this credit facility, with $910 million outstanding," said Yang-Myung Hong, credit analyst at Nomura. The additional issuance at Treasuries plus 176bp provided the Hong Kong lender with a cost saving of about 25bp versus the Libor plus 200bp funding rate of the subordinated credit facility, Hong added.
BOC International, Deutsche Bank and UBS, which arranged the first issue in February, were also joint bookrunners for the tap. The ratings on the notes were also unchanged from February -- A1 from Moody's, BBB+ from Standard and Poor's and A- from Fitch.