IFR Asia – February 10, 2018

International Financing Review Asia February 10 2018 17

COUNTRY REPORT

Australia 17 Cambodia 18 China 19 Hong Kong 25 India 25 Indonesia 26 Japan 28 Malaysia 29

New Zealand 30 Philippines 30 Singapore 30 South Korea 31 Taiwan 32 Thailand 33 Vietnam 33

AUSTRALIA

DEBT CAPITAL MARKETS

› WESTPAC TARGETS SUB MARKET

WESTPAC has released price guidance at 90-
day BBSW plus 320bp–340bp for Westpac
Capital 5 Notes, an Additional Tier 1 retail
note offer, aiming to raise approximately
A$750m (US$585m).
The new notes, rated BB+ (S&P), include
a reinvestment offer for eligible holders of
the A$1.19bn Westpac CPA AT1 notes due
to be called on March 31.
The offer for the new perpetual non-

call 7.5-year (September 22 2025) is

expected to open on February 13 and

close on March 6. The margin is due

to be set on February 12 following the

bookbuild.

ANZ, CBA, JP Morgan, Morgans, NAB, UBS

and Westpac’s own syndicate team are joint

lead managers.

The last Australian major bank to sell

domestic AT1 notes was ANZ with last

September’s A$931m ANZ Capital Notes 5.

The perpetual non-call 7.5-year (March 20

2025) floating-rate note priced 380bp wide

of 90-day BBSW.

Also in the subordinated segment,

Westpac privately placed a reverse-enquiry

driven self-led A$150m 10-year non-call

Tier 2 note last Wednesday, priced at three

month BBSW plus 140bp. The following

day the note was tapped for A$75m at the

same margin.

This was Westpac’s second local currency

T2 note, rated Baa1/BBB (Moody’s/S&P), in

recent weeks after January 17’s A$160m

5.0% 30-year bullet EMTN, aimed at Asian

life insurers.

The previous T2 note from an Aussie

major in the domestic market was National

Australia Bank’s ASX-listed A$800m 11.5-

year non-call 6.5 in February 2017, priced at

three-month BBSW plus 220bp.

› AUSNET MTN RAISES A$500M

AUSNET SERVICES HOLDINGS, rated A3/A–

(Moody’s/S&P), raised A$500m from last

Friday’s 10.5-year domestic MTN sale, the

second and largest corporate domestic bond

Duration jump for Kangaroo bonds

„ Bonds Asian real money investors turn their attention to the 10-year segment

A greatly expanded investor pool is triggering

a run of large, long-dated issues in the SSA

Kangaroo market, in stark contrast to recent

years, when mid-curve trades were in the

ascendancy.

Supranationals and agencies have raised

a combined A$5.9bn (US$4.6bn) from 44

Kangaroo bonds from so far this year, with

A$3.8bn coming via new 10-year and 10.5-

year issues or taps, to take average deal

maturities out to 9.5 years.

This represents quite a shift from early

2017, when just A$1.0bn of the A$4.4bn

year-ago SSA sales total was related to long-

dated Kangaroos, with only three of these

trades raising A$100m or more, the largest

being A$150m.

Small taps or private placements

then dominated the segment, targeting

Japanese life insurers in search of high-

yielding Triple A long-term Australian

dollar bonds to hedge daily inflows from

their Australian dollar-denominated life

insurance policies.

“Japanese insurers still play a large part,

but we are currently seeing much greater

interest from fund managers, central banks

and official institutions, particularly out

of Asia, alongside selective demand from

Australia and Europe,” said Paul White,

global head of syndication at ANZ.

This year has already delivered 13

A$100m-plus long-dated issues, including

two A$500m 10.5-year Kangaroos, from the

ASIAN DEVELOPMENT BANK and last Tuesday’s

INTERNATIONAL BANK FOR RECONSTRUCTION AND

DEVELOPMENT print. The previous IBRD 10.5-

year sale in April 2026 raised A$150m.

HIGH-QUALITY BOOK

The latest 10.5-year offering from the World

Bank funding arm confirmed the broadening

real-money investor base.

Central banks and official institutions,

which traditionally focus on the five-year

segment, bought 64%, with asset managers

and insurance companies taking 20%,

while banks and corporates picked up the

remaining 16%. Asia was allocated 88%,

Australia 8% and Europe 4%.

Asian banks, central banks and official

institutions are looking to diversify portfolios

overseas, away from local markets where

property, resource and bank credits tend to

dominate. In doing so, they are drawn to the

recent back-up in yields and relative cost of

funding advantages at the long end of the

Kangaroo curve. The larger, more liquid,

deals now being printed further adds to

their allure.

The AFRICAN DEVELOPMENT BANK priced a

A$360m 3.35% 10.5-year Kangaroo on

January 30 at a yield of 3.38%, a decent

pick-up over the 3.1575% to 3.21% yield

range for taps of its July 2027s between April

and October last year.

In absolute yield terms, the ACGB/

Treasury spread had narrowed from around

30bp a year ago, but remained positive at

10bp–20bp during January, whereas the five-

year ACGB fell to flat to Treasuries, having

offered 40bp more juice in early 2017.

“The US dollar market is compelling in the

three-year to five-year segment, while the

10-year-plus Kangaroo segment is attractive

on a comparative cost of funding basis. We

expect this to remain the case unless yields

retreat and/or the cross-currency swap basis

narrows significantly,” White said.

Overall, SSA Kangaroo supply is unlikely

to reach 2014’s recent annual high point of

A$26.0bn, especially if five-year offering

remains in the doldrums. This seems likely

in the near term as the five-year ACGBs/

Treasury spread had fallen to negative

15bp last Thursday as US yields ratcheted

higher. The 10-year spread tightened to

just positive 2bp.

Three-year to four-year issuance withered

after 2011, when the Australian Prudential

Regulation Authority left Kangaroos off its

list of high-quality liquid assets for Basel

III purposes, thereby depleting the natural

bank-balance-sheet demand for this short-

term paper.

JOHN WEAVERS