Australian banking major ANZ’s debut Tier 2 bond offering in January established the renminbi as an alternative funding currency for global bank capital and effectively reopened the market in a challenging period for Dim Sum offerings.
The Rmb2.5bn (US$390m) deal marked the first time a foreign bank raised Basel III capital in the offshore renminbi market.
The bigger-than-expected size and competitive pricing spawned a flurry of copycat issues. Since then, Westpac, Commonwealth Bank of Australia, BPCE and Societe Generale have all issued T2 Dim Sum bonds.
ANZ captured the ideal window for its offering at the start of 2015, gaining first-mover advantage in a market facing a severe shortage of Dim Sum supply.
A sound understanding of Asian investors was a key to the decision. While European investors have concerns over the contractual loss-absorption language required in Australia, ANZ was able to target Asian investors, who looked at the T2 as a higher-yielding format than they would normally see from an Australian credit.
Global funds had turned cool on the currency amid fears of an economic slowdown in China, but Taiwanese investors were looking to buy, and pockets of local demand remained strong.
ANZ easily garnered an order book of Rmb3.5bn for its 10-year non-call five issue, enabling it to increase the size to Rmb2.5bn from the initially planned Rmb1bn.
Pricing was tightened from initial guidance of 4.875% area to 4.75%, or 82.7bp over one-year CNH Hibor, which compared favourably with levels for ANZ in the domestic and offshore markets. The notes were priced flat to the Australian market and more than 80bp inside both its euro and US dollar curves.
The trade played well into the lender’s pan-Asian strategy. Almost half of the 71 orders came from Taiwan, 36% from Hong Kong and 14% and Singapore. A quarter of the investors were new to the bank.
Even compared to T2 Dim Sum issues of Chinese lenders, ANZ scored higher grades in many respects, beating China Construction Bank’s Rmb2bn issue for size and pricing only 8bp wider than the 4.67% yield on CCB’s notes.
ANZ has also had better luck pricing bank capital in Dim Sum than other Australian majors have had in other foreign currencies. Australian banks have had to pay a premium in euros, for example, but this trade showed that Dim Sum could be a competitive funding currency.
ANZ itself was joint global co-ordinator with HSBC, as well as joint bookrunner with CCB International, ICBC and Standard Chartered for the trade, which made financial issuers take a fresh look at offshore renminbi.
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