Morgan Stanley taps Hong Kong dollar market

Morgan Stanley sold HK$1.5 billion ($192 million) of Federal Deposit Insurance Corporation (FDIC)-backed bonds yesterday, paying 20bp over the three-month Hong Kong interbank offered rate (Hibor). The floating-rate note issue, which matures on June18, 2012, was arranged by Morgan Stanley itself and HSBC.

The bonds are issued under the Temporary Liquidity Guarantee Program (TLGP), are registered with the Securities and Exchange Commission and fully guaranteed by the United States government. Last October, the US's FDIC agreed to guarantee bond issues by financial companies to help them access funding and cope with billions of dollars of asset write-downs. More than 8,000 institutions with more than $13.6 trillion of assets fall within its ambit.

The initial coupon rate for the Morgan Stanley notes will be determined on the settlement date, which is February 18. As a reference, three-month Hibor was fixed yesterday at 0.79214%. The transaction was priced and placed within the space of an afternoon, according to bankers familiar with the deal. Morgan Stanley last raised money in Hong Kong dollars back in 2002, although it did tap the Singapore dollar market in 2007.

The former investment bank, which was converted into a bank holding company in September, also sold $3 billion of three-year FDIC-backed US dollar-denominated bonds last week, at 28bp over the London interbank offered rate (Libor).

But Asia's local currency bond markets offer banks a cheaper source of financing than they can get in either the US or Europe. Bank deposits and foreign currency reserves in Hong Kong have risen significantly compared with last year, providing a natural appetite among bank treasurers for high-quality bonds. So far this year, there has been about HK$5 billion of government-guaranteed issuance in Hong Kong, with banks from Australia, Denmark, Ireland and Sweden all launching deals. HSBC, with its leading position in Asia's domestic bond markets, has been the prominent arranger for most of them.

Morgan Stanley is rated single-A by Standard & Poor's and A2 by Moody's Investors Service. The Hong Kong-dollar bonds, because they are guaranteed by the US government, will be rated triple-A.

Last week, HSBC arranged a HK$2.5 billion floating-rate three-year deal for GE Capital, also priced at 20bp over Hibor, which was the first FDIC-supported issue in an Asian currency.