CIMB prices successful bond issue

Malaysia''s CIMB makes its debt market debut with a M$600 million NCD issue.
After an extensive 10-day roadshow, Malaysia’s Commerce International Merchant Bankers (CIMB) came to market with a well-received M$600 million ($157.9 million) negotiable certificate of deposit (NCD) deal. Although the bank has been involved in the local debt market in a lead manager capacity for other companies, this was actually CIMB’s first time as an issuer.

With the notes carrying a maturity of 10 years, the deal set another precedent by being the longest-dated NCD transaction to come out of Malaysia. Previously, the longest dated NCD deals were of five years. The notes pay an annual coupon of 6.50% and were rated triple-A by the Rating Agency of Malaysia.

An official at the bank declared himself happy with the reaction to the deal among investors, highlighted by the fact it was two times oversubscribed and that the deal rose in size from M$450 million to M$600 million as a result of demand. “The deal went very well, and we were pleased with the pricing because the 6.5% coupon is comparable to triple-A rated corporate and treasury bonds,” the official said. “It attracted interest from all sorts of investors: insurance companies, pension funds, asset managers, financial institutions, even some corporates.”

The official explained that the decision to take the NCD route over a straight bond issue was driven by a desire to widen the investor base. “Normally, when financial institutions - particularly commercial banks - buy assets, there is a liquidity requirement for them to hold some money against that asset with the Central Bank,” he said. “When you buy NCDs, because it’s not technically an asset but a deposit, you don’t have that requirement and banks don’t have to hold money in the Central Bank. This was useful for us because it widened the demand for the paper.”

This might have been the bank’s first issue, but the official added that CIMB hadn’t been active in that role because of market conditions. “When Malaysia went into the Asian crisis, there were problems with liquidity and credit, and not many banks were willing to underwrite deals,” he opined. “Now that we’re coming out of the crisis, we’re seeing a lot of new issues being done and the market deepening. For us, we took a look at our balance sheet and saw the need for diversification so that’s why we did this deal.”

Although the official added that it was too early to forecast when, he fully expects the bank to utilize this way of funding in the future, although that would depend on the continued growth of the local debt market.