Opportunistic ADB launches $500 million bond

Supranational taps global market for third time in 2002 with seven-year deal.

The Asian Development Bank (ADB), rated triple-A by Moody's and S&P, encouraged by continuing strong appetite among Asian investors for quality credits as well as the recent back up in yields on US Treasuries, last week took the opportunity to tap the global bond market for the third time this year.

Dresdner Kleinwort Wasserstein and UBS Warburg acted as joint lead managers on the $500 million transaction, which takes ADB borrowing for the year past the US$4 billion mark, with $3 billion raised from the global bond market.

The seven-year issue was priced on Thursday in New York, with ADB joining the Swedish government as another high-profile recent issuer to lock-in US dollar funds over the same maturity.

At launch, pricing came at 99.48% on a coupon of 4.25% to yield 103bp over five-year US treasuries. "The pricing is competitive against comparable transactions," comments a syndicate official at one of the leads. "When ADB priced, Sweden was trading at 100bp over on Treasuries on the bid side, while Australia '09 bonds were 102 over."

With yields on Treasuries rising in recent weeks by over 50bp, the official added that it was an opportune time to tap investors, particularly Asian central banks. "Sentiment for this deal was certainly driven by the Asian central banks, which are looking to get their hands on quality credits, even more so recently because of the back-up in yields on US Treasuries," he explains. "There was a huge Asian bid for this deal, which continues what has been happening throughout the year. This has driven all primary market transactions in most sectors, from triple-A paper to right down the yield curve."

Around 68% of the bonds found homes in non-Japan Asia, 22% in Greater China and 8% in the Middle East, the latter region again showing strong sentiment for ADB paper as it had with the two previous deals this year.

Central Banks accounted for 69% of the notes, insurance companies 20%, banks 6%, while there was also interest from retail investors.

Juan Limandibrata, the ADB's assistant treasurer and funding division head, says that current market conditions were behind the decision to issue now. "The timing was in line with ADB policy to take advantage of attractive funding opportunities when they arise," he says. "The market has seen quite a few seven-year deals in recent months, which is an attractive maturity sector because it allows us to get long-term funding at attractive terms.

"If you look at comparable transactions such as the Sweden issue [a $750 million deal, launched a week earlier than ADB], our pricing was close to that and we are pleased to be competitive," adds Limandibrata. "I am pleased that investor interest in ADB paper remains strong. I think this reflects the flight to quality, and our triple-A status meets the standard investors want at this time. Asian central banks are also looking for longer maturities and yields, which was reflected by their strong interest in this deal."

ADB's other globals so far this year were a $2 billion five-year issue in January via Nomura and Morgan Stanley and a $500 million 10-year deal in August led by Deutsche Bank and Salomon Smith Barney.

When it was launched, pricing on the five-year bonds came at 99.61% on a coupon of 4.875% to yield 51bp over Treasuries. On Friday, the bonds were trading at 55bp over. The 10-year notes were priced at 99.04% on a 4.5% coupon, to yield 42bp over 10-year treasures, but were trading 20bp wider than that at the end of last week.

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