Record demand for NZ sovereign
Bonds Offshore bid remains strong, despite dwindling yield advantage of NZGBsBY JOHN WEAVERSNEW ZEALAND attracted a record
order book in excess of NZ$5bn
(US$3.7bn) for its first syndicated
sovereign nominal bond offering
in 19 months last Tuesday as
investors fought for a slice of the
scarce government paper.
The strong demand – double
the previous level – enabled
joint leads ANZ, BNZ, Deutsche
Bank and UBS to easily secure the
New Zealand Debt Management
Office’s maximum NZ$2.0bn
target and price the 3.0% April
20 2029s at the tight end of the
April 2027s plus 16bp–19bp
guidance.
Non-Australasian investors
bought 58% of the bond, their
second highest allocation,
including significant European
real-money interest alongside the
traditional strong Asian bid.
“Offshore demand for NewZealand government bonds
clearly remains strong, despite
their traditional yield pick-up
having largely evaporated,”
said Glen Sorensen, syndication
manager at ANZ Bank New
Zealand.
Although NZGBs, rated Aaa/
AA/AA, continue to offer the
highest absolute yield among
sovereigns with at least one
Triple A rating, Sorensen noted
that the 10-year pick-up over
Treasuries has declined from
over 75bp just a year ago to less
than 20bp currently.
The new 11-year April 2029s
priced to yield 3.135% at a
time when benchmark 10-
year Treasuries and Australian
Commonwealth government
bonds were yielding 2.88% and
2.82%, respectively.
“My sense is that many
offshore investors may have
come into the New Zealandfixed-income market for yield
pick-up and for diversification,
and are now encouraged to stay
for other reasons,” said Sorensen.
“The NZDMO’s development
of the portfolio mix of debt
in recent years, with longer
duration and index-linked bonds,
has undoubtedly opened up New
Zealand government debt to a
more diverse potential investor
base, which is going to help.”
Buyside interest has been
fortified by limited government
supply which, in turn, has
been compounded by a delay
in the new line’s introduction.
Last November, the NZDMO
postponed the launch of the
April 2029s that had been
earmarked to print before the
end of 2017, due to a stronger-
than-expected Core Crown
residual cash position.
Gross New Zealand
government bond issuanceis projected to be NZ$7bn in
the current fiscal year to June- With NZ$9.1bn due to be
redeemed or repurchased, net
issuance is forecast at minus
NZ$2.1bn. For the next three
fiscal years, net issuance is seen
at minus NZ$900m, minus
NZ$300m and minus NZ$4.1bn,
respectively.
New Zealand’s small
government debt, which is
expected to fall to 25.2% of GDP
as of June 30 and reach 20.2% at
the end of fiscal year 2020-21,
does raise liquidity concerns,
especially as the country does
not qualify for Citigroup’s
nominal World Government
Bond Index, which many global
portfolio managers like to track.
The WGBI, established in
1987, requires outstanding
government bonds, with
maturities of over one year, to
be the equivalent of at least
US$50bn, €40bn (US$49.6bn) or
¥5trn (US$47bn).
With the NZ$11.9bn March 15
2019s having just fallen out of
the qualifying total, New Zealand
ABC plans record equity recap
Equities China’s other big three lenders unlikely to followBY KEN WANG, FIONA LAUAGRICULTURAL BANK OF CHINA last
week announced plans for a
record Rmb100bn (US$15.85bn)
private placement of A-shares to
the Ministry of Finance and six
state-owned enterprises, joining
the growing queue of Chinese
lenders seeking to boost capital.
The deal is set to become
the biggest A-share private
placement by a listed Chinese
commercial bank, according to
Thomson Reuters data.
ABC is the first of China’s four
global systemically important
banks to carry out an equity
recapitalisation since the sector’s
last round of financings in 2010
and 2011.
Analysts, however, do not
believe that the three other
G-SIBs – Bank of China, China
Construction Bank and Industrial
and Commercial Bank of China- will follow suit with massive
recaps of their own any time
soon.
“ABC’s placement does not
mean the beginning of a new
wave of equity refinancings for
the banking sector, given that
most banks are currently well
capitalised,” wrote analysts at
SWS Research in a report.
Moody’s estimates the
placement will add roughly 8%
of additional equity capital to
the bank and lift its Common
Equity Tier 1 ratio to 11.38%
from 10.58% as of end-September
- As one of China’s four
G-SIBs, ABC is required to have
a CET1 ratio of 8.5% by the end
of 2018.
ABC’s placement comes as
China is actively expanding
fundraising channels for
commercial lenders to
strengthen the banking sector
and support the real economy.
The China Banking Regulatory
Commission said on March 12
it was mulling rule changes to
allow banks to issue innovative
capital instruments, such as
perpetual bonds, convertible
capital instruments, and other
loss-absorbing debt instruments,
according to guidance published
on its website.
Bankers expect refinancing
to remain a major theme for
the sector throughout the year,
after a number of listed banks
announced recap plans in 2017.
“ABC’s placement provides
a reference for banks seeking
to replenish capital through
equities, after the regulators
clamped down on follow-on
offerings last year,” said a banker.
“Other banks may replicate
the deal, given it secures long-
term support from major
shareholders and avoids
pressuring the secondarymarket.”
ABC’s two leading
shareholders, Central Huijin
Investment and the Ministry
of Finance, will take up about
79% of the placement shares,
with a lock-up period of five
years. China National Tobacco,
along with three wholly owned
subsidiaries, and New China
Life Insurance are the other
subscribers, all with a 36-month
lock-up.
Most banks turned to
convertible bonds or preferred
shares to replenish their
capital after the regulators
tightened rules on private share
placements and rights issues
to ease pressure on the stock
market.
CICC analysts said in January
that the recaps of listed banks
(including both completed and
new proposals) had reached
Rmb494bn since 2017. CBs andNews