Bank of China (BOC) is expanding its profile in Europe and Australia with bond offers in Frankfurt, Luxembourg and Sydney, as well as Hong Kong and Macau. The state-owned bank has sold $3.78 billion in eight tranches of Reg S paper in multiple currencies.
The $3.78 billion of senior unsecured notes will be drawn from BOC’s $40 billion 12-month medium term note programme, which the Hong Kong and Shanghai-listed lender announced at the start of the month.
The size of this year’s programme has increased to $40 billion, equivalent to 1.3% of BOC’s total liabilities plus equity, from $30 billion last year, to meet the bank’s increased funding needs.
This is the first time that BOC has sold bonds in Frankfurt under its medium term note programme. In previous years, the bank has issued bonds drawn from its programme in Hong Kong, Macau, Sydney and Luxembourg. BOC will issue €500 million ($564 million) 3-year fixed rate bonds in Frankfurt, at mid-swaps (MS) +48bp, which is 22bp tighter than initial price guidance of MS +70bp.
BOC’s bonds to be issued in Frankfurt will trade on the Frankfurt exchange, the Frankfurt-based China Europe International Exchange and the Hong Kong Stock Exchange. This will raise the Chinese bank’s profile for German investors. “It helps to entrench BOC in Germany, one important segment of continental Europe’s markets,” said Moody’s vice president and senior analyst Nicholas Zhu.
BOC has the largest overseas portfolio among Chinese banks. To support Chinese companies venturing abroad, it aims to expand its overseas business to 40% of total assets term from 26% last summer, according to a recent report from Fitch Ratings.
BOC’s overseas business has more stringent risk mitigation and stronger asset quality than at home, with an overseas non-performing loan ratio of 0.2% last summer versus 1.8% for its domestic loans, the ratings agency added.
Fitch, Moody’s and S&P Global have all assigned BOC investment grade ratings of A, A1 and A with a stable outlook respectively. BOC, as one of China’s Big Four state-owned banks, has a “very high likelihood of receiving extraordinary report from the Chinese government,” said a recent S&P report.
Fitch is expeced to give BOC’s medium term note programme an A rating. It is already rated A and A1 by S&P and Moody’s respectively.
MULTIPLE TRANCHES
As part of the bond sale, BOC will issue A$600 million ($429 million) of 3.5-year floating rate notes in Sydney at three-month BBSW +100bp. This was 4bp tighter than guidance.
In addition, BOC will issue $500 million of 3-year floating rate notes in Luxembourg at a spread of the 3-month Libor +72bp, lower than the initial price guidance of +95bp.
About 50 investors placed more than $2 billion of orders for this tranche. Among these investors, 85% are in Asia, 13% in Europe and 2% in the US, while 57% of them are banks and 14% asset managers and fund managers. These bonds will trade on the Luxembourg stock exchange and Hong Kong stock exchange.
From Hong Kong, BOC sold $550 million 5-year fixed rate notes and $300 million 10-year fixed rate notes at 3.125% and 3.625% respectively. Priced at Treasuries plus 88bp and 120bp respectively, they came in much tighter than ginitial price guidance of +120bp and +160bp respectively.
Roughly 55 investors placed over $1.8 billion of orders for the 5-year paper, the majority - 97% - in Asia with the remainder in Europe. Banks accounted for 84% of these investors.
About 54 investors put in orders of over $2 billion for the $300 million 10-year notes. Again the majority, 93%, were in Asia with the rest from Europe. Banks accounted for 57% of these investors, while 24% are made up of asset managers and fund managers.
Also in Hong Kong, BOC sold HK$6 billion ($765 million) 2-year fixed rate notes at 2.45%, lower than the initial price guidance of 2.7%.
In Macau, BOC printed Rmb2.5 billion ($372 million) of 1-year fixed rate notes and Rmb2 billion of 3-year fixed rate notes. Both tranches tightened in 30bp from guidance. The coupon of the 1-year bond and 3-year bond is 3.1% and 3.3% respectively.
Demand for the HK$6 billion bonds and the Macau RMB bonds was weaker than that for the notes. The former was ovesubscribed 1.55 times while the two tranches from Macau were oversubscribed 1.36 times and 1.25 times respectively. The notes from Luxembourg, on the other hand, saw final books of $2 billion, making them four times oversubscribed.
Joint lead managers and book runners for the bonds in all juristictions include Bank of China and Citigroup. Many other financial institutions were joint lead managers and book runners in various locations, including DBS, Standard Chartered, MUFG and UBS.
