Financial secretary Paul Chan Mo-po said
HEûEXPECTEDûAûRECORDûHIGHûDElCITûOFûûOFû
GDP in the coming year, and forecast
economic growth would be minus 1.5% to
plus 0.5% in real terms in 2020.BOCOM HK PRICES DEBUT AT1BANK OF COMMUNICATIONS (HONG KONG) has raised
US$500m from a tightly priced debut
offering of Additional Tier 1 capitalsecurities, taking advantage of ample
liquidity and the chase for yield despite fears
over the coronavirus outbreak.
4HEûPERPETUALûNON
CALLûlVEû"ASEL
)))û
compliant non-cumulative subordinated
capital securities, which have expected
ratings of Ba2/BB+ (Moody’s/Fitch), were
priced at par to yield 3.725%. Initial guidance
was in the 4.10% area.
The deal received strong anchor support,
especially from corporate clients such ascentral state-owned enterprises that are
freer to purchase non-investment-grade
securities, according to a banker on the deal.
The strength of demand meant the deal
came with a lower coupon than previous
AT1 issues from other Hong Kong lenders,
the banker said.
The issuer, a wholly owned subsidiary of
Bank of Communications, one of China’s big
SIXûBANKS ûONLYûOFlCIALLYûBEGANûOPERATIONSûINû
early 2018 after its parent company spun off
the Hong Kong business.
The pricing of BoCom HK’s AT1s was
inside the fair value estimates of 3.9%–4.0%
BYû.OMURAûANDûûBYûRESEARCHûlRMû
CreditSights, after they referenced other
AT1s issued by the Hong Kong-incorporated
subsidiaries of Chinese banks such as
Bank of China (Hong Kong), China Citic
Bank International and CMB Wing Lung
Bank.
BOCHK’s 5.9% AT1, callable in September
2023, was bid at 3.41%. BOCHK’s AT1s
are investment-grade rated with a Baa2
rating by Moody’s and a BBB rating
BYû30û4HEûBANKûHASûAûSIGNIlCANTLYûLARGERû
asset base and better capital ratios than
BoCom HK.
CreditSights applied about 18bp for a
difference of 17 months on the call date
between BOCHK’s 5.9% AT1 and BoCom HK’s
AT1 issue to arrive at a 3.60% yield and
ADDEDûBPûTOûREmECTûTHEûDIFFERENCEûINûISSUEû
ratings to come up with a fair value estimate
of 3.85%.
The banker said bookbuilding was smooth
and orders were strong despite sell-offs in
risk assets over the rapid increase of
infections from the coronavirus outside
China. But participation from private banks
and trading accounts was lower than
expected because of market conditions, he
said.HUNT FOR YIELD
Final statistics were not available at the time
of writing but orders were said to be over
53BNûAHEADûOFûTHEûRELEASEûOFûlNALû
guidance, including US$765m from the
leads.
“For investors, in such a low-yield
environment, many IG names are offering
below 3% yield, except for some LGFV
names, so the yield BoCom HK’s AT1s is
offering is already quite attractive, despite
the non-IG issue rating,” the banker said.
“Investors have to go down the capital
structure such as AT1s and perps in
exchange for a higher yield. But with
expected parent support, investors feel
comfortable with the name.”
The banker said the issuer was happy
with the pricing.
“The issuer had started to prepare the AT1
issue as early as mid-2019. At that time, it50 International Financing Review February 29 2020Size no object for BOC Tier 1
FIG Bank battles through volatile market with US$2.82bn printBANK OF CHINA last Wednesday printed a
US$2.82bn AT1 despite heightened market
volatility as the coronavirus outbreak went
global.
The Reg S offshore preference shares issue
was the largest AT1 in the international market
from a PRC-incorporated bank since Postal
Savings Bank of China’s US$7.25bn deal in
September 2017.
The perpetual non-call five Basel III-compliant
securities were priced at par to yield 3.6%, 35bp
tighter than initial guidance. The coupon is the
lowest to date for an AT1 from a Chinese bank,
helped by extremely low US Treasury yields.
The deal received strong anchor orders,
especially from Chinese fund managers and
corporates, ensuring smooth execution despite
the overall market volatility.
BOC’s state ownership was enough to
persuade investors to look beyond the threat of a
rise in bad loans as firms wrestle with the fallout
of the coronavirus.
“Market sentiment turned weak in recent
days amid fears over the coronavirus spreading
outside of China, and risk assets have been sold
off,” said a banker on the deal.
“Against such a market backdrop, some
investors have become more conservative in
terms of pricing. But given the strong name of
the issuer and solid anchor support, we were
confident to get the deal done as scheduled.”
Another banker on the deal said: “We cannot
say it was ideal timing, but it is always difficult
to predict where markets are going. The issuer is
happy with the overall result, in terms of pricing
and book size, in such a market situation.”
Final pricing was inside the fair value
estimates of 3.7% by Nomura and 3.7%–3.8%
by CreditSights, which both referenced AT1s of
Chinese and Singaporean banks.
Hong Kong and Shanghai-listed Bank of
China is rated A1/A/A and the offshore AT1s have
expected ratings of Ba1/BB+/BB+.
Feedback from investors was mainly in the
mid to high 3% range and the leads put the fair
value estimate at around 3.60%–3.65%.“There was no new-issue concession. What I
can say is that the pricing was pretty much at fair
value,” the first banker said.NO EURO TRANCHE
BOC had considered adding a perpetual non-call
seven euro-denominated tranche on a reverse-
enquiry basis, but did not proceed in the face of
low demand and high-yield expectations from
investors.
“It could achieve a bigger issue and a lower
funding cost in dollars,” said the first banker.
He said investors were asking for a 3% handle
for euro currency AT1s, which is about 5% in
dollar terms after taking into account the cross-
currency swap.
The first banker said there had been plenty of
euro-denominated AT1s from European banks
lately, usually at higher yields than Chinese bank
AT1s, explaining the lack of investor interest.
The latest issue completed BOC’s plan to raise
up to Rmb120bn (US$17bn) from preference
shares, after it issued Rmb100bn-equivalent in
two tranches onshore last year.
Final deal statistics were not available at the
time of writing but orders were said to be in
excess of US$5.8bn ahead of the release of final
guidance, including US$460m from the leads.
The newly priced AT1s traded weaker in the
aftermarket, as risk assets extended their decline
following more reported cases of the coronavirus
outside China. The opened were quoted at
99.20/99.45 on Thursday, giving a yield of
3.75%/3.68%.
BOC’s management made clear in an investor
conference call that the offshore offering was
aimed at maintaining an active international
investor base that can be tapped when required,
even though terms are more competitive
onshore.
Nicholas Yap, a credit analyst at Nomura’s
trading desk, said the technical backdrop for
Chinese offshore AT1s remained supportive,
given that supply has been limited since capital-
raising efforts were redirected onshore last year.
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