BoCom breaks lull with $550m floater

China's fifth-largest lender sells an aggressively-priced floater after building a peak order book of $4.25 billion.

Bank of Communications, China's fifth-largest lender by assets, priced a $550 million three-year floating rate note on Wednesday, making the most of the summer lull to generate a strong order book from deal-starved investors.

The bank was the first Asian issuer to tap the dollar bond market this week. Given that limited supply, the Reg S deal generated more than $4.25 billion of bids before the release of final price guidance, bankers familiar with the deal said.

Floating rate issuance may, on the surface, not appear the obvious choice in the current environment, when base rates are razor-thin and fixed-rate issuers are getting away with uber-tight spreads. But floating rate notes are easier to refinance — Bank of Communications followed the usual three year format — and, in any case, they will help the bank better match its asset and liabilities, bankers said.

Besides, the willingness of investors to lock in low fixed-rate returns in other transactions shows that there is still widespread suspicion low rates are here to say. Global central banks are certainly helping strengthen that argument: the Bank of England and the Reserve Bank of Australia have both eased this month.

Syndicate bankers said the A2/A-/A -rated lender's decision to issue the floating-rate debt was primarily because the borrowing cost was attractive on a spread basis. The issuer certainly managed to push pricing well below initial guidance.

Initial price guidance for the August 2019 deal was set at three-month Libor plus 115bp, before bankers tightened that to 2.5bp each side of 90bp over Libor. Final pricing was fixed on par to yield 87.5 over Libor, equivalent to about 1.69%, according to a term sheet seen by FinanceAsia.

The closest comparable was the company's existing $500 million January 2019 2.25% note, which was trading on a Z-spread basis of 87bp. That meant there was virtually no new-issue premium relative to the January 2019 fixed-rate bonds.

The final order book finished at $3.3 billion with participation from 126 accounts. By geography the book split 95% Asia and 5% Europe. By investor type banks tooks 82%, fund managers 14% and others 4%.

So far this year, issuers in Asia ex-Japan have sold $8.9 billion of 23 floating-rate notes, compared with $6.2 billion across 31 issues the same period last year, according to Dealogic. They have issued $107.3 billion of fixed-rate bonds this year, down from $124.8 billion last year.

The joint global coordinators of the transaction were BoCom Hong Kong branch, HSBC, and Standard Chartered, while ABC International, Bocom International, China Citic Bank International, Citi, Commonwealth Bank of Australia, China Everbright Bank Hong Kong branch, President Securities and Shanghai Pudong Bank Hong Kong branch were joint bookrunners.

The story has been updated from first publication with final distribution stats.

¬ Haymarket Media Limited. All rights reserved.

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