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ICBC sets new record with Lion City bond issue

4b yuan offering will be biggest of its kind; 2 of the 3 tranches to be listed on both SGX, GTSM

[SINGAPORE] Industrial and Commercial Bank of China's (ICBC) latest offshore yuan offering scored a couple of firsts, while proving there is ample demand for such issues in the market.

ICBC on Tuesday said its Singapore branch has issued a total of four billion yuan (S$821.4 million) of Lion City hybrid bonds.

Not only will it be the biggest Lion City bond issuance - breezing past the two billion yuan record ICBC had set in 2013 - it is also the first time a Chinese bank has issued dual-listed tranches. Two of the three tranches will be listed on both the Singapore Exchange (SGX) and Taiwan's GreTai Securities Market (GTSM).

Ashish Malhotra, head of bond syndicate at Standard Chartered Bank (StanChart), says the transaction "reflects both the deepening as well as the broadening of the CNH bond market". CNH refers to the yuan when traded offshore.

The four billion yuan hybrid bond issue was priced in three tranches; one for two-year bonds to raise two billion yuan, a second for five-year bonds to raise 700 million yuan, and the final for seven-year bonds to raise 1.3 billion yuan.

The bonds were priced with a coupon of 3.5 per cent, 3.7 per cent, and 3.95 per cent respectively. They were rated A1 Stable by Moody's, and A Stable by S&P and Fitch.

Hybrid bonds are labelled as such as they have a mix of debt and equity elements. In this case, the bonds are subordinated bank capital papers, and count towards ICBC's capital requirements.

ICBC Singapore said the issuance received strong support, with orders for the hybrid Lion City bonds exceeding 7.3 billion yuan across the three tranches, or close to double the final issue size. Correspondingly, the transaction was priced 10 to 15 basis points tighter than the initial price guidance, ICBC said.

The tranche of two-year bonds will only be listed on SGX, while bonds from the remaining two tranches will be dual listed on the SGX and the GTSM. Bankers noted that the investor base is broadening, with bank investors dominating earlier order books.

Demand for the dual-listed bonds came mainly from Taiwan-based funds, a look at the order book showed.

The seven-year tranche booked subscriptions of over 2.1 billion yuan, with 93 per cent of demand coming from Taiwan. Just one per cent of demand came from private banks, with 96 per cent of subscriptions coming from funds.

"We are increasingly seeing longer-tenure bonds getting priced in the CNH market. While it is still not possible for every issuer to price a five-year or longer tenure in CNH bond markets, selected high-quality issuers certainly can," explained Mr Malhotra.

Orders were more even for the bonds with the shortest tenure. The two-year tranche - which attracted more than 3.5 billion yuan in orders - had 47 per cent of demand from banks, 24 per cent of subscriptions from fund managers, and 21 per cent of orders from private banks.

About 30 per cent of the two-year tranche orders came from Singapore, just over 20 per cent from Hong Kong, and nearly 15 per cent from Taiwan.

Bookrunners for this transaction were ICBC Singapore, BNP, Citi, DBS, HSBC, Standard Bank and StanChart.

Bankers are watching the deluge of papers from the Chinese banks, and in particular, Basel III-compliant securities that are expected to be issued this month as well.

Such securities can be written down if the bank's operation is deemed to be no longer viable. They offer a higher coupon, as a result, and are regarded as high-yield papers.

China's top banks are expected to issue the first batch of preferred shares that will qualify as additional Tier 1 capital, which may total US$25 billion, an IFR report in late August said.

"We are watching those papers to see if they suck up the liquidity in the markets," said a senior banker from a large foreign bank.

But Clifford Lee, head of fixed income at DBS, said there will be support coming not just from the private banking clients - who have been big holders of Asian high-yield securities - but also from institutional players. Notably, bonds from Asia make up under 10 per cent of the portfolio of many global bond funds, which suggests continuing demand. "So is it going to be a total game-changer, and cause a shock in the market? I don't think so."

Brian Weintraub, head of FIG (financial institutions group) capital and funding solutions in Asia at Deutsche Bank, held the same view, saying significant institutional demand should limit the impact of the re-pricing of other Asian high-yield names. "There is not a direct overlap with dedicated Asian high-yield investors."

The offshore-yuan bond market is still going strong. Swiber Holdings last week sold 450 million yuan of 7.75 per cent offshore yuan notes due 2017, making it the first non-bank in Singapore to sell Lion City bonds.