SGD New Issue Review : Bank of Communications HK 3Y 2.1%

New Issue – 3yr SGD Senior – Bank of Communications Hong Kong Branch
Issuer :  Bank of Communications Co.LTD. Hong Kong Branch
Programme:  US$ 3bn Medium Term Note Programme
Issuer Rating:  A/A-/A2 (Fitch/S&P/Moody’s)
Expected Issue Rating:       A2 (Moody’s)
Size:  SGD 50 million
Status:  Direct, unconditional, unsubordinated and unsecured Notes
Start: 24 July 2014
Maturity: 24 July 2017
Tenor:  3 years
Cpn: 2.10% S/A
Issue Price: 100.00
Denom: SGD 250k X 250k
Sett:  Euroclear/Clearstream
Governing Law:   English

3 year senior debt at 2.1%.

3 year interest rates 1.03% and thus you are getting a premium of 1.07% for a 3 year fixed deposit.

Bank of China has been the only regular SGD issuer so far with their 1 and 2 y papers at 1-ish %. Thus Bank Comm HK (not to be confused with the Philippine one)  is here with their maiden issue.

Top 5 leading Chinese commercial bank. 60th largest financial institution in the world by market cap.  Note that DBS is 85th, OCBC is 123th and UOB is 98th.

The worries over Chinese banking is centred on the mid sized banks, as ratings agency S&P pointed out. Bank of Comm is NOT mid size (top 5).

  July 11 (Bloomberg) — Midsize Chinese banks face more pressure on credit profile than their larger peers amid a slowdown in domestic economy, Standard & Poor’s senior director Qiang Liao said in a statement.
• Larger banks because of their size and reach have better credit buffers: S&P
• Slippage in loan quality was greater and faster for midsize lenders than for their larger peers over the past 1 or 2 yrs: S&P
• S&P views all mega-banks as govt-related entities, given long-term and strategic nature of govt ownership in these banks
• S&P doesn’t see govt ownership, if any, in midsize banks is strategic by nature

The pricing is fair and in line with their USD 700 mio Bank of Comm HK 2.125% 01/2017 issue which is yielding 1.94% for 2.5 years and giving a credit premium of 1.05%.

In contrast, DBS just launched a 5 year2.246%  USD 750 mio senior paper at a credit premium of 0.50% for their Aa2 rating which is 3 notches higher for Moodys and 2 notches higher for Fitch.

SGD 50 mio seems too small for an issue size at this price. We should not see capital gains like the Olam’s and PIL’s but in times when junk is waning, this could be the little safe name we need with a 2% handle.

Do note that there will be little or NO SELLING EFFORT for this paper because there is no private banker rebate.