Twice as nice: IADB returns to Taiwan bond market

Low interest rates in Taiwan prompt Inter-American Development Bank to tap local investors for the second time this year.

The Inter-American Development Bank (IADB) - the triple-A rated multilateral entity established to foster development in Latin America and the Caribbean - has hit Taiwan's debt capital market for the second time in 2001, in what has been a busy year for issuance from supranational institutions.

ABN Amro acted as lead manager on the NT$7 billion transaction, as it did with the NT$4 billion offering from the IADB in April. China Securities was brought in as co-lead on the latest deal.

The issue marks a first for Taiwan, as it comprises the first callable notes from a supranational issuer for the NT$5 billion five-year tranche.

Calls can be made at half-year intervals from the end of the first year to the end of the third year of the bond's tenor. The coupon offered to investors ranges from 3.30% on the shorter-dated notes to 3.34% for the bonds with a three-year call option.

Additionally, the deal features NT$1 billion of six-year bonds - which priced at 3.40% - and NT$1 billion of six-year notes that were offered at 3.50%.

The spread pick-up on the bonds is between 10 and 15 basis points below treasury bonds with the same maturities according to an official at the lead manager.  

The official added that the callable structure was used in response to demands from investors because it enhances the five-year notes by as much as 10 basis points, which he says is particularly attractive in light of falling government bond yields.

Banks accounted for 70% of the investor base with the remainder bought by insurance companies.

A climate of low absolute interest rates in Taiwan this year accounts for the number of supranational issuers tapping the market, with the Nordic Investment Bank launching a NT$7 billion deal in June and the European Investment Bank (EIB) issuing NT$9 billion in bonds in May.

With rates dropping further in the last two months, more deals are expected to be completed in the next two months. The EIB deal, for example, also featured seven-year notes, which, with a coupon of 3.83%, priced far wider than IADB's latest deal. The EIB is set to return to the market in October in a transaction that has been mandated to China Trust. Market sources also suggest that Citibank is set to arrange a deal for the Council of Europe, also likely to launch next month.