Insurer FWD raises profile with $325m bond

Richard Li’s insurance company establishes its footprint in the debt world with a debut 10-year bond, targeting investors with appetite for longer tenor notes.
FWD is Hong Kong's ninth-biggest insurer
FWD is Hong Kong's ninth-biggest insurer

FWD sold a $325 million 10-year bond on Wednesday, targeting investors with a strong appetite for longer tenor notes amid a rising interest rate environment.

The Reg S-only registered note priced at Treasuries plus 250bp, which is 15bp tighter than its initial price guidance of Treasuries plus 265bp, according to a term sheet seen by FinanceAsia. It has a yield of 5.063% and coupon of 5%. 

Ranked ninth in Hong Kong in terms of annualised premiums, the insurer will use the proceeds to repay its total outstanding borrowings under a $500 million facility agreement dated February 21, 2013, according to a source close to the deal. The Hong Kong-based insurer has $205.7 million of outstanding debt as of June 30, 2014, according to its financial statements.

Excess proceeds will be used to increase its Hong Kong subsidiary FWD Life’s solvency ratio — although there's no urgency to do so — as well as for general corporate purposes, the source added. The insurer has a solvency ratio of 241% as of the first half of 2014, well in excess of the 100% regulatory benchmark.

FWD is a holding company, established in December 2012 for the purpose of acquiring a number of ING’s former businesses in Hong Kong and Macau. The company now has five wholly-owned subsidiaries involved in life insurance in Hong Kong and Macau, as well as general insurance, financial planning and employee benefits solely in Hong Kong.

Investors were cautious because of FWD’s short track record, its small share of a fragmented market and the fact that life insurers worldwide remain challenged by low investment yields, but the bond is still expected to outperform.

“The relative scarcity of US dollar paper available from Hong Kong issuers and Asian insurers will help support the deal,” said a Hong Kong-based investor. “Richard Li’s strong reputation should ensure solid appetite from regional asset managers and may even entice some Hong Kong private banking investors to venture into their less-preferred 10-year territory.”

Hong Kong issuers have borrowed just $8 billion so far this year — which is miniscule compared to a year-to-date total of close to $140 billion for dollar-denominated deals in Asia ex-Japan, according to Dealogic data.

And despite the recent US Treasury yield correction, life insurers remain desperate for higher-yielding investment-grade offerings, an Asian fixed-income trader said. Ten-year USTs increased by 15bp last week and by 26bp during the past fortnight to trade around 2.61% earlier this week, according to Bloomberg data.

FWD is jointly owned by Richard Li — Li Ka-Shing’s younger son — with an 87.7% stake, and Swiss Reinsurance Investments Company, with a 12.3% stake. Outside of FWD, Li’s Pacific Century Group holds core investments in financial services, telecommunications and media and real estate.

The company's market share of new business in terms of annualised premium equivalent in the first half of 2013 was about 3.1%, making it the ninth-biggest life insurer by this measure, according to Fitch.

The nearest comparables for FWD’s Baa2/BBB+ rated bond were A rated AIA and BBB+ rated China Taiping’s outstanding 10-year notes maturing in 2023, which were trading at a G-spread of 120bp and 225bp respectively prior to pricing, according to a source familiar with the matter.

The offering received a total orderbook of over $1 billion from more than 100 accounts, added the source. Asian investors subscribed to 78% of the notes, followed by European investors with 22%.

Funds and insurance companies purchased 75% of FWD's paper, followed by financial institutions 15% and private banks 10%. 

Li has strong ambitions to create a pan-Asian player selling insurance to the region’s emerging middle class, with plans to expand across the region.

For Li this venture marks a return to insurance after he sold Pacific Century Insurance to Fortis in 2007 and a low-risk way of riding the economic growth across emerging Asia. The profitable businesses in Hong Kong are more than enough to pay for FWD’s expansion.

In 2013, FWD’s HK Life subsidiary generated total revenue of $1.1 billion, a 1% increase year-on-year, and a net-profit-after-tax of $321 million versus a loss of $17 million the year before. The earnings rebound is facilitated by a change in mix towards higher margin health and protection products, as well as improved investment returns. 

HSBC, Morgan Stanley and Standard Chartered are the joint coordinators and bookrunners of the transaction. Other bookrunners include ANZ and Bank of America Merrill Lynch.

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