Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, is testing the market with Asia’s first dollar bond that is Basel III-compliant, according to data compiled by Bloomberg.
Industrial & Commercial Bank of China (Asia) Ltd. is marketing a 10-year, Tier 2 subordinated security, according to a person familiar with the matter. Filipino lender Metropolitan Bank & Trust is also planning a Basel III-compliant dollar subordinated note, according to Fitch Ratings Ltd.
ICBC’s bond will provide lenders in the region with their first gauge of demand and pricing for this new instrument in dollars. Other Asian lenders have issued Basel III-compliant bonds, which were denominated in local currencies. Malaysia’s CIMB Bank Bhd said it completed the country’s first Basel III-compliant bond last month, while Singapore’s United Overseas Bank Ltd. said in July it sold the first Basel III-compliant Additional Tier 1 capital any lender in Asia.
“There are a number of banks in Asia that are looking at these types of instruments right now,” said Mark Young, head of Asia Pacific financial institutions at Fitch. “For some markets like China and India, banks are looking thin on capital. Meanwhile for others, which are not receptive to equity raising, this is a cheaper form of regulatory capital.”
CIMB issued a 750 million ringgit ($232 million) 10-year subordinated bond in September and UOB S$850 million ($679 million) of 4.9 percent perpetual bonds in July.
Goldman Sachs Group Inc. ended a seven-year investment in ICBC this May and sold its $1.1 billion stake as Basel’s new rules make it more expensive to hold minority stakes in banks.
Global regulators led by the Basel Committee on Banking Supervision are seeking to increase banks’ protection against future losses.
“Basel 3 compliant instruments are better positioned to absorb losses if a bank approaches failure,” said Fitch’s Young.“This makes them riskier from a debt-holder’s angle compared to the legacy Basel 2 securities.”
The rating company downgraded ICBC’s 1.5 billion yuan ($245 million) Basel III-complaint Tier 2 notes to BBB+ from A- in July, saying bondholders “could suffer a full loss, even if ICBC Asia were to return to financial health.”