IFR Magazine – January 20, 2018

The bonds are rated Baa2/BBB–/BBB+. UBS
was joint lead, no books, and Credit Suisse
and BaslerKB were co-leads
Deutsche Bank was swiftly followed by a
CREDIT AGRICOLE senior unsecured (preferred)
5.75-year deal that came in the same
SFr175m size (up from a SFr150m minimum
starting point). It came in line with mid-
swaps plus 18bp area guidance, putting it
4bp inside its curve.
That was the tightest spread from a
French bank in Swiss francs and
demonstrates the good liquidity situation
within the investor base supported by the
favourable market conditions and a higher
yield environment.
“Investors seem to recognise that senior
unsecured preferred could become a rare

product and are willing to accept tighter

pricings versus senior non-preferred,” said

Stefan Boesl, director of FIG bond

origination and co-head of Swiss DCM and

syndicate at Commerzbank Zurich.

In the domestic sector, there was a large

SFr475m nine-year from Luzerner KB and a

tiny SFr20m increase to KB Tessin’s (Ticino)

recent 10-year, both self-led.

NON-CORE CURRENCIES

WESTPAC LOCKS IN LOW T2 RATE

WESTPAC BANKING CORPORATION broke new ground

with last Wednesday’s A$160m (US$108m)

5% 30-year bullet Tier 2 EMTN issue, which

locked in low rates for subordinated paper in

the issuer’s own currency.

The catalyst for the trade was the strong

Asian demand seen for Commonwealth

Bank of Australia’s blowout US$1.25bn

4.326% 30-year bullet 144A/Reg S T2 issue on

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The Westpac notes were launched at a

minimum issue size of A$100m and the

offering was subsequently increased to

A$160m, with Asian life insurers

dominating allocations.

The notes, which were marketed on the

strength of their 5% coupon, were

theoretically priced at about 185bp over

BBSW. This compares with the CBA 30-year

T2 issue, which would have been swapped

Tight Samurai reward for BPCE

„ FINANCIALS French bank shows growing support for pot system in bookbuilding

BPCE left nothing to chance in its quest for tight

pricing on Japan’s first Samurai issue of 2018,

a dual-tranche offering of senior preferred and

senior non-preferred bonds.

The French bank raised a total of ¥116.1bn

(US$1.04bn), comprising ¥52.9bn of preferred

notes and ¥63.2bn of non-preferred paper – the

latter counting towards its total loss-absorbing

capacity.

A clever tranching strategy and unusually

narrow price guidance, coupled with the

transparency of the pot system during

bookbuilding, helped BPCE achieve far tighter

spreads than on recent Samurais from the

financial sector.

The deal also showed growing support

among Japanese investors for the pot system,

widely used in the global markets.

“We have no doubt the pot will spread as a

trend,” said Ryusuke Kurihara, debt syndication

head at Daiwa. “Surely, we are going to promote

it [in international yen deals] and quite a few

issuers will follow.”

BPCE sold a total of six tranches at tenors

ranging from five to 15 years, but official

marketing was initially limited to two – a five-

year preferred and 10-year non-preferred.

After two days of sounding on January 11–12,

BPCE began marketing on Monday, with the

other tranches being offered on a reverse-inquiry

basis.

Guidance was very narrow from the start. The

preferred tranches were offered at 4bp–5bp for

five years, 10bp area for seven and 15bp area for

10 years – in contrast to the traditionally wide

ranges preferred in the Samurai market.

For the non-preferred tranches, BPCE started

the five-year SNP at 22bp area, the 10-year at

40bp–42bp and the 15-year at 36bp area.

These levels were roughly the maximum the

issuer could pay, given that its funding costs

in yen are more expensive after swaps than in

euros and dollars.

“The five-year senior preferred and the 10-

year senior non-preferred were official tranches

from the beginning, but, for the other tranches,

we decided to make them official when we found

¥1bn of demand,” said a banker on the deal.

As the guidance for the five-year senior

tranche already looked quite expensive for the

borrower, that piece had a cap of ¥60bn.

At final pricing, the SP portion was split into

¥49.4bn of 0.217% five-year, ¥1.2bn of 0.329%

seven-year, and ¥2.3bn of 0.484% 10-year notes.

The SNP tranches comprised ¥38.4bn of 0.385%

five-year, ¥23.7bn of 0.734% 10-year, and ¥1.1bn

of 0.917% 15-year notes.

TIGHTER SPREADS

Compared with prior transactions from French

banks, spreads have tightened remarkably –

especially in the SNP format.

When BPCE introduced the first yen-

denominated five-year SNP bonds a year ago,

they were priced at 50bp over. Societe Generale

in May and Credit Agricole in June issued at

30bp over. From the UK, Lloyds’ six-year MREL

yen bonds were priced at 30bp a month ago.

Despite the tighter spreads, BPCE continued

to receive a good response from Japanese

investors. Sub-30bp had been thought to be

insufficient to draw demand, but the five-year

SNP attracted good interest from trust banks

and asset managers at 22bp, while lifers

participated as well.

These investors were also major buyers of the

10-year SNP tranche, which also saw foreign

participation. Lifers bought the 15-year SNP.

The preferred tranches were also priced

tight. The spread of 10bp on the seven-year SP

compared with 17bp on BPCE’s most recent

issue last June and on Banque Federative du

Credit Mutuel’s October offering.

The five-year notes drew good demand from

a city bank and specialised lenders drawn to the

0.20%-plus coupon. Regional investors bought

the other two senior tranches.

In order to draw as much demand as possible

and offset the tighter spreads, the 10-year SP

and SNP were both offered as Social bonds.

However, leads said only a few investors bought

them for the Social bond feature in particular.

POT SYSTEM

One key feature of the issue was use of the

pot system during marketing, where orders

are compiled centrally and shared with the

syndicate, rather than retained by individual

arrangers. The retention system is traditionally

used in the Japanese domestic market, and

BPCE was only the second to use the pot

method for a Samurai, after a Shinhan Bank

trade in October.

Japanese investors have traditionally resisted

sharing the details of their orders with the

entire bookrunning syndicate, but most buyers

accepted it – to the surprise of some leads.

“I thought there would be many Account Xs,

but there were only a few,” said another lead on

the issue. “Less than 10%, so Japanese investors

are more familiar than we thought.”

Daiwa, Mitsubishi UFJ Morgan Stanley, Mizuho,

Natixis, and Nomura were the leads on the issue,

rated A2/A/A/A (Moody’s/S&P/Fitch/R&I) for

the SP pieces and BBB+/A/A– (S&P/Fitch/R&I)

for the SNP portion.

Takahiro Okamoto