JPMorgan leads BEA through choppy waters

Bank of East Asia succeeds in drawing investors out of their shells last night, pricing a benchmark $600 million FRN at the tight end of guidance.
Bank of East Asia, the largest independent local bank in Hong Kong (A3/BBB+), raised $600 million through a Reg-S lower tier-2 10-year non-call five FRN shortly after US bond yields rose to five-year highs. The deal, managed by sole bookrunner JPMorgan, marks the biggest bank capital issued by a Hong Kong bank.

The transaction, which includes a coupon step of 152bp over Libor, attracted a $900 million order book and priced at 52bp over Libor. The geographic split saw 87% of the bonds allocated to Asia, and 13% to Europe, with funds buying 3%, banks 86%, asset managers 8%, insurance and pension funds 2% and retail and private banks 1%.

JPMorgan released an initial guidance of 55bp over Libor on Thursday morning. This succeeded in building momentum for the deal, attracting investors to a print which, two weeks ago, could have priced sub-50. ôInvestors are treading cautiously, expectations have changed, and the risk premium has increased. We needed some reassurance, and these levels were comforting,ö says a source on the buy-side.

With guidance revised to 52bp-55bp over Libor, the deal launched and priced at the tight end of guidance in just nine hours, minimising risk in a volatile market. Investors who spoke to FinanceAsia were reluctant to take any outright positions on the paper, placing small orders of $5-10 million, again due to market conditions.

In terms of comparables, bankers quoted Hana Bank's 2017s (A2/BB+ 5.375%) and NACF's 2017s (A3/A- 5.375%), both 10-year non-call five transactions. These bonds were trading at 48bp and 46bp over Libor. Investors also quoted the issuerÆs own 2015s, which were trading in the 20s. However, specialists say these bonds are unsuitable as comparables since they are locked away by buy-and-hold investors.

The bonds are expected to do well on the secondary market, and opened at re-offer bid last night. According to a trader, ôthese bonds may not perform particularly well initially, but once the current climate stabilises, I expect them to tighten to the high 40sö.

An investor adds: ôBank of East Asia is traditionally an aggressive issuer, but over time its bonds tighten nicely. Lots of buyers will lock them safely away, and they will have sold to many portfolios in the region.ö

It is rumoured that the proceeds will be used to refinance last yearÆs five-year non-call one bond, which if not paid off would step up to 165bp over Libor. Last nightÆs transaction will reportedly take over from these bonds, which have been called and are due for redemption on June 27. This may explain why last night's transaction was launched during current market instability.
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