Citic Bank International prices $500 million of lower tier-2 bonds

Hong Kong-based Citic Bank International returns to the dollar market with a 10-year issue of subordinated lower tier-2 debt and a new brand.

Ending a two-and-a-half-year absence from the US dollar bond market, Citic Bank International (Citic) returned on Monday with a $500 million 10-year issue of subordinated lower tier-2 debt.

A window opened for the Hong Kong-based subsidiary of Chinese lender China Citic Bank to tap the market, and the deal was done in just 12 hours from announcement to pricing. Taking advantage of open windows and ensuring a swift intra-day execution has been the common feature for new issues during the past two months as market conditions have remained volatile.

The bonds priced early Tuesday morning (Hong Kong time) and carry a fixed-rate coupon of 6.875%. The notes were re-offered at 99.654 to yield 6.924%. This translated into 362.5bp over the equivalent 10-year US Treasury yield. The maturity date has been set at June 24, 2020.

The bonds, which were issued under Citic's medium-term note programme, have been assigned ratings of Baa2 and BBB+ by Moody's and Fitch respectively.

The borrower announced initial yield guidance in the high 300bp area. This was revised by early morning Monday to 375bp. After the close of the Asian trading session, final guidance was in a range of 362.5bp to 375bp. At the same time, the borrower announced it would cap the size of the transaction at $500 million.

The bonds eventually priced at the tight end of guidance at 362.5bp. Citic opened steady yesterday morning in Asia, trading between 359bp and 361bp. According to Bloomberg data, the spread remained at the 361bp mark at the end of the Asian session for a yield of 6.833%.

"To be able to print the deal at the tight end of final guidance and achieve a $500 million deal size in the Reg-S only market is an achievement in comparison to recent (smaller) deals from higher-rated borrowers such as Korea Resources ($300 million and A1/A rated) and Li & Fung ($400 million and A3/A rated)," said one banker.

Although there were no directly comparable issues used by arrangers to price the new Citic bonds, investors looked to Dah Sing Bank's $225 million 10-year issue in order to gauge relative value during marketing. At the time of announcing the Citic deal, the Dah Sing bonds were trading at 290bp over Treasuries.

Brayan Lai, a credit analyst with Credit Agricole CIB, approved of the pricing. "I feel [the yield spread] more than compensates for the credit and benchmark size achieved," he said. "It still offers a 60bp pick-up from Dah Sing Bank's issue."

Despite it being rated six notches above Citic, investors also referenced Standard Chartered's $750 million 10-year bonds that priced last Thursday. These were issued at 275bp and by early Monday morning were trading tighter at 267bp.

After eight hours of bookbuilding, Citic's lead arrangers -- Barclays Capital and HSBC -- had locked in $3.3 billion of demand from over 230 accounts. The bulk of the deal, or 74%, was allocated to Asia, a further 24% went to Europe and the remaining 2% to the rest of the world. Fund managers bought 40% of the transaction, private banks took 35%, commercial banks 14%, insurance and pension funds 10% and 1% was sold to others.

Citic last issued a public bond in the US dollar market in December 2007 under its former name of Citic Ka Wah Bank. That deal was a $250 million lower Tier-2 10-year bond that was callable after five years. This time around, it was therefore not only important to update investors on Citic's credit story but also to inform them about the client's recent rebranding from Citic Ka Wah Bank to Citic Bank International.

In order to meet these objectives the client went on the road in May with a non-deal roadshow to Singapore, Hong Kong and London. Since then, the borrower had been monitoring the market for the right opportunity to price a deal.

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