Citic closes new lower tier-2 offering

Barclays and HSBC utilise non step-up structure for a new five-year non-call one deal for Citic Ka Wah.
On Friday afternoon (December 1), Hong KongÆs Citic Ka Wah Bank priced a new $250 million five-year non-call one lower tier-2 FRN with Barclays Capital and HSBC acting as joint leads. The Reg-S deal came inside of revised guidance after a short series of roadshows.

The deal rated Baa3/BBB by MoodyÆs and Fitch, is only the second international lower tier-2 deal to come out of Hong Kong this year following Bank of East AsiaÆs similarly structured deal in June and the first Hong Kong bank public bond deal for the second half of 2006.

The deal carries a five-year non-call one structure. However, due to HKMA regulations restricting the use of a step-up coupon on deals callable prior to five years, the notes are redeemable at a 99% discount and have an artificially inflated coupon of 168bp over three-month dollar Libor.

Effectively, this means that when the notes are called as expected after year one, taking into account the 99% discount, investors will receive a nominal coupon of 68bp over Libor. However, if the notes are not called, investors will receive a 168bp over coupon until maturity, equivalent to a 100bp step-up.

The leads launched the deal earlier this week taking the deal to investors in Singapore and Hong Kong. Guidance was released to investors on Wednesday at 70bp to 75bp over three-month Libor, but was revised prior to pricing on Thursday to the 68bp to 70bp over level.

Comparably, the deal prices only 3bps back off the previous Bank of East Asia deal which closed a $500 million lower tier-2 deal in June. However it should be noted that at Baa2/BBB+, BoEA is rated two notches higher than Citic and as Hong Kong's largest independent bank, enjoys a much better profile among investors.

As of Sunday, details of the bookbuild and subsequent allocations were not available.

The proceeds from the issue will be used to improve the bankÆs capital adequacy ratio in order to support its organic growth. Citic is rated Baa2 by MoodyÆs Investors Service and BBB+ by Fitch. Citic Ka Wah is a wholly-owned subsidiary of Citic International Financial Holdings Limited (CIFH), which as of November 30, is 52% owned by the Citic Group.

The bank operates 31 branches in Hong Kong and also has an established presence in China through its branches in Beijing, Shanghai and Macau, and its wholly-owned finance company, China International Finance Company Limited in Shenzhen. Additionally, the bankÆs overseas branch network covers New York and Los Angeles.

On November 24, CIFH announced that it had entered into a strategic alliance with Banco Bilboa Vizcaya Argentaria (BBVA). BBVA will acquire 15% of CIFH's enlarged shares post the acquisition of China Citic Bank.
¬ Haymarket Media Limited. All rights reserved.
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