Hang Seng strengthens its capital base via FRN

HSBC helps Hang Seng price a new lower-tier 2 offering in line with price guidance.
On Friday (June 23) Hong KongÆs Hang Seng Bank priced a $450 million Reg-S lower tier 2 subordinated offering via sole bookrunner and parent company HSBC. The co-managers were Mitsubishi UFJ Securities and Mizuho International.

The 10-year no call five year FRN priced in line with initial guidance.

The deal was shopped to investors in Hong Kong and Singapore, with price guidance in the 33bp over Libor area.

The leads then priced the Aa3/A+ rated notes at three-month Libor plus 30bp on a reoffer price of 99.869%. This equated to a yield of Libor plus 33bp. The notes step-up an additional 50bp if they are not called. Fees were 25 cents.

The leads closed the books with $570 million in total orders from 28 accounts, an oversubscription ratio of 1.3-times. In terms of geography, the books were split approximately 33% in to Europe with the remainder staying in Asia. By investor type; banks bought 42%, funds 41%, corporate accounts 8%, insurers 5% and private banks 4%.

Comparables are relatively hard to find, due largely to the fact that there are few Asian banks trading at Hang SengÆs equivalent rating. Two widely referenced comparables, however, were DBSÆs recent 15-year callable 10-year (June 2016), and a $500 million A1/A+/AA- rated 10-year no call five deal for Santander, which was also completed in June.

DBSÆs deal was trading around 61bp over Libor, with an implied five year curve putting a new deal in the mid-40s range. While the Santander deal was quoted at 36bp over Libor.

Hang Seng is looking to issue lower-tier 2 debt for strategic purposes in order to utilise its balance sheet for organic growth and future loan growth.

ôThe encouraging response to this offering reflects investor confidence in Hang Seng,ô says Raymond Or, chief executive of Hang Seng. ôWe will utilise the funding to strengthen the bankÆs capital base and support business growth in both Hong Kong and mainland China as part of our strategy for continuing to increase shareholder value.ö

As one of Asia most strongly capitalised banks, Hang Seng enjoyed a total capital ratio of 12.8% at the end of 2005, an 0.8% increase from its 2004 level. Its capital base increased by HK$4.1 billion ($528 million) to HK$37.4 billion ($4.8 billion). Hang Seng reported a profit attributable to shareholders of HK$11.3 billion ($1.4 billion) in 2005.

Over the course of 2005, Hang Seng issued HK$2.5 billion in subordinated paper and obtained a subordinated loan of $260 million, both qualifying as tier 2 capital.

Hang SengÆs risk-weighted assets adjusted for market risk grew by 5.2% from 2004, due primarily to the increase in advances to customers and financial investments.
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