China Citic Considers ‘Bank Capital’ Bond After ICBC Basel SaleRachel Evans
China Citic Bank International Ltd. is considering a so-called bank capital transaction three weeks after Industrial & Commercial Bank of China Asia Ltd. sold Asia’s first Basel III-compliant debt in the U.S. currency.
China Citic, a unit of Hong Kong-listed China Citic Bank Corp., plans to meet investors next week to discuss the possible offering, a person familiar with the matter said today, asking not to be identified because the details are private. ICBC Asia’s Basel III-compliant bond was described as a bank capital transaction when it was announced. First Gen Corp. is marketing more of its existing 2023 notes, a separate person said.
ICBC Asia was the first borrower from the region to sell dollar bonds compliant with Basel III regulations on banking capital, data compiled by Bloomberg show. The notes, which could be rendered worthless if regulators in Hong Kong or China deem the issuer or parent at risk of becoming unviable, priced at 315 basis points more than five-year Treasuries. That spread widened to 339 basis points more than the benchmark as of 2:26 p.m. in Hong Kong today, Bloomberg prices show.
The major Chinese banks’ Basel III-compliant issuance programs “are not going to be interrupted by a 20 basis-point movement,” Alan Schmoll, a director in Bank of America Corp.’s Asia debt capital markets team, said at a press briefing last week. “It’s the offshore banks that can afford to be more picky but I’m not aware of any banks that are delaying plans.”
China’s four biggest commercial lenders announced intentions earlier this year to sell as much as 230 billion yuan ($37.8 billion) of junior bonds. China Citic will meet investors in Singapore, Hong Kong and London from Oct. 28, the person familiar with the matter said.
Issuers from elsewhere in Asia are also selling subordinated debt. Korea Exchange Bank last week raised $200 million from a sale of notes compliant with Basel II, an older version of the capital regulations, a person with knowledge of the matter said. Metropolitan Bank & Trust Co., the Philippines third-largest lender, is planning a dollar Basel III-compliant bank capital transaction, a person familiar with the matter said last month.
First Gen, that country’s second-largest generator of conventional electricity, plans to sell as much as $50 million more of its 6.5 percent 2023 bonds, a person with knowledge of the details said. The company is marketing the notes at 100.125 cents on the dollar, the person said.
The cost of insuring corporate and sovereign bonds against non-payment in the Asia-Pacific region outside of Japan was little changed today, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 135 basis points as of 9:05 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The benchmark is set to have fallen 21.4 basis points this month, according to data provider CMA.
The Markit iTraxx Australia index was also little changed at 106 basis points as of 11:12 a.m. in Sydney, National Australia Bank Ltd. prices show. The measure, which has ranged from 96.1 to 149.5 this year, is poised to have dropped 19.2 basis points since Sept. 30, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Japan index was unchanged at 86 basis points as of 9:11 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge, which retreated to a four-week low on Oct. 21, is on track to have declined 11.3 basis points this month, CMA data show.
Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.