Cathay lifts off with benchmark lower tier 2 bond

JPMorgan takes its second Taiwanese bank to overseas investors.

Cathay United has priced Taiwan's first ever offshore lower tier 2 dollar denominated bond, raising $500 million from a 15 non-call 10-year step up bond deal via sole lead manager JPMorgan. The deal was launched through Cathay's offshore branch in order to circumvent Taiwan's 20% withholding tax regulation on coupon payments.

Cathay is the second ever Taiwanese bank to access the international sub debt market following Chinatrust's $500 million perpetual step-up ten deal earlier this year.

The Baa1/A- deal priced inside of the initial guidance first presented to investors last week at roadshows in Hong Kong and Singapore. Pricing was fixed at 99.977% on a coupon of 5.5% to yield of 5.503%. That equates to 125bp over US Treasuries or 80bp over Libor. If the deal is not called the coupon reverts to a floating rate of 180bp over six-month Libor to duration. Fees on the deal were 30bp

The deal comes in at the wide range of indicative pricing. The issuer had targeted a yield of 75bp to 80bp over Libor.

Books closed at $600 million with 39 accounts being allocated paper.

Some 71% were from Asia, 15% were based in Europe, and 14% were American. By investor type, 78% were asset managers, 14% were banks and the remaining 8% were insurers.

Chinatrust's upper tier 2 transaction, also via sole books JPMorgan, offers the best comparable. That deal, rated Baa1/BBB- was trading around 100bp to 102bp range.

This is about 16bp wider than launch in March, when the deal was priced at 99.118% on a coupon of 5.625% to yield 5.743%, equating to 128bp over Treasuries and 86bp over Libor.

Specialists say Cathay priced about 1bp to 2bp wider that Chinatrust on a like-for-like basis - taking into account the fact that given that lower tier 2 debt typically prices 25bp tighter than upper tier 2 debt. Cathay's deal also benefits from the fact that it has a dated structure versus Chinatrust's use of a perpetual

The deal slipped in early trading on its first day trading yesterday (July 29) struggling to find traction and pushed out 3bp to 128bp over Treasuries, but found its feet in the afternoon coming back in later in the day to finish at 126bp over.

Cathay United Bank is the lending arm of Taiwan's Cathay Financial Holding, one of Taiwan's leading private sector banking groups.

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