SYDNEY/SINGAPORE/HONG KONG, Jan 22 (IFR) - Australian major ANZ revived the sleepy Dim Sum market with a Rmb2.5bn (US$403m) Tier 2 offering, becoming the first foreign issuer to sell a Basel III capital instrument in renminbi.
When Aa2/AA-/AA- rated ANZ first announced the offering, most market participants had expected it would simply go through the motions to reinforce its pan-Asian credentials, but the size of the issue and the relatively tight pricing to Chinese banks raised the prospect that Dim Sum bonds could be a valuable new financing tool for foreign lenders.
ANZ was heard to be looking for an issue size of Rmb1bn, but it easily surpassed that after garnering a Rmb3.5bn book and was also able to tighten from initial guidance of 4.875% area to price at 4.75%, or 82.7bp over one-year CNH Hibor.
ANZ director of global funding Mostyn Kau said the bank had an ongoing annual T2 funding requirement of just over A$1bn and generally made one offshore visit a year as there was a finite domestic investor pool for such Australian 2 paper.
Many of the country's historically conservative institutional buyers remain wary of the related non-viability language and triggers, which will see such bonds convert to equity if the Australian regulator deems a bank is at the point of non-viability.
Previously, ANZ has raised A$$3.5bn from four domestic T2 deals since 2010 plus US$1.55bn through two US dollar sales.
Kau emphasised the diversification benefits of the trade, saying "25% of the investors were new to ANZ. The deal represents an important diversification of the bank's capital base into a region strongly aligned to the bank's super-regional strategy".
The size of the deal that makes it a potential game changer, with ANZ able to raise significantly more than the three senior unsecured Dim Sum bonds from Australia's major banks.
ANZ debuted in that segment in December 2010 with a Rmb200m two-year offering and then a Rmb1bn three-year note in August 2012. National Australia Bank sold a Rmb400m two-year Dim Sum in May 2013.
"The transaction shows that the Dim Sum market is a viable alternative to the US dollar and euro markets for T2 issuance," Kau said. "Demand was certainly very strong in a market that hadn't seen much supply at all, which was very pleasing for our debut issue."
This is important given the hefty premium NAB had to pay over locally issued instruments for last November's first euro Basel III compliant T2 bond from an Australian lender.
NAB's EUR750m 10-year non-call five priced 165bp wide of mid swaps or around 40bp more than local T2 10-year non call fives. This was significantly more than the concession Australia's four major lenders pay for euro issuance in the senior market.
Unlike European banks' T2 debt, where loss-absorption is statutory, investors there have misgivings about the contractual language required in Australia, misgivings that Asian investors do not appear to share.
Although the issuer did not release exact swapped back levels, Kau said ANZ's T2 Dim Sum "compared favourably" with pricing levels in the domestic and offshore markets.
The only previous offshore Basel III T2 sale out of Australia was ANZ's USD$00m 10-year 144A bullet, which came at 180bp over Treasuries in March 2014.
China Construction Bank raised Rmb2bn in its T2 offering last November, but ANZ beat that for size and priced only 8bp wider than the 4.67% yield CCB's notes were paying. Arguably, the Australian bank's 10-year non-call five structure was more issuer friendly, as it has only one reset, in year five, whereas CCB's spread over CNH Hibor will reset at the end of the fifth year and every subsequent year.
CCB's notes had BBB+ ratings from both S&P and Fitch, against A3/BBB+/A+ for ANZ's T2, but Dim Sum investors lean towards Chinese issuers as safe havens.
Asian investors had few concerns about the regulatory language, instead focusing on the yield. PRC investors have tended to steer clear of anything paying less than 4%, due to a rising cross-currency swap between CNH and onshore renminbi. As a result, the only other Dim Sum deal to price this year so far, a CNH500m 7-year bond from Air Liquide, was sold almost entirely to Taiwanese investors, and ANZ also drew on that investor base.
Almost half of the 71 orders came from Taiwan, Hong Kong accounting for 36% and Singapore 14%. In terms of investor type, 53% were insurance firms, 36% fund managers, 7% banks, 3% private banks and 1% hedge funds. European investors stayed away, as they tended to view Dim Sum as a currency play and are less keen on a depreciating renminbi.
"CNH has had a reasonably subdued start to the year, but this has effectively reopened that market," said Andrew Duncan, director, capital financing at HSBC in Australia.
"I imagine you'll see others follow this transaction, both within Asia and further afield. There was strong institutional real money demand driven by life insurers and fund managers across Asia, which really highlights the growing pool of CNH funds looking for investment opportunities in the region.
"Australian bank debt can be a little expensive for Asia-based investors, but this gave them a higher-yielding format than they would normally see from Aussie credit."
ANZ itself was joint global co-ordinator with HSBC, and joint bookrunner with CCB International, ICBC and Standard Chartered. Moody's rated the issue Aa2, S&P saw it as AA- and Fitch as AA-. (Reporting By John Weavers, Daniel Stanton and Spencer Anderson, editing by Dharsan Singh)