Bank of China Selects Nine Banks for First Offshore Tier 2 Bond

Bank of China Ltd. has chosen nine banks to lead its first offshore dollar-denominated subordinated Tier 2 bond that complies with Basel III rules.

Bank of America Corp., Bank of China International Ltd., HSBC Holdings Plc and Wells Fargo & Co. will be the global coordinators, while Credit Agricole CIB, Deutsche Bank AG, JPMorgan Chase & Co., Mizuho Financial Group Inc. and Morgan Stanley will be joint bookrunners, people familiar with the transaction said, asking not to be identified because the details are private. The mandate isn’t final and banks may be added or replaced, the people said.

Bank of China’s board approved the issuance of 60 billion yuan ($9.8 billion) of subordinated notes that count as Tier 2 capital under new rules in May last year. The lender sold 30 billion yuan of 10-year subordinated notes in the local market on Aug. 5 with a coupon of 5.8 percent. The remaining 30 billion yuan will be issued offshore before board approval lapses, the people familiar with the matter said. That happens in December 2015, according to a Bank of China Aug. 12 statement.

The sale will be the first dollar subordinated notes that qualify as Tier 2 capital by Bank of China since the country adopted Basel III rules. Under the new regulations, bonds can only count as capital if they include a clause that allows the issuer to pause or cancel repayments under financial stress.

The banks chosen to lead the Tier 2 issuance are among those shortlisted to advise the Chinese lender on raising as much as $11.5 billion in capital by issuing securities offshore.

Bank of China may offer as much as $6.5 billion in securities that qualify as Tier 1 capital before the end of the year. The timing for the Tier 2 offshore issue is still unclear, the people said. They also said they expect the Tier 2 transaction to be about $1 billion in size.

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