New CoCo Issue Alert : ICBC AT1 PREFERENCE SHARES

ICBC AT1 USD/CNH/EUR

  • NEW REG S/144A MULTI CURRENCY (USD/CNH/EUR) AT1 PREFERENCE SHARES ANNOUNCED
  • TOTAL AUTHORIZED OFFSHORE SIZE UP TO RMB 35BN (~US$5.7BN EQUIVALENT)
  • ALL TRANCHES SUBSTANTIALLY OVERSUBSCRIBED FROM IOIs POST GLOBAL ROADSHOW
  • PRICE GUIDANCE: 6.0-6.25% FOR ALL TRANCHES (WILL PRICE IN RANGE)
  • EXPECTED TRANCHE SIZES:
    USD PerpNC5: ~2.95bn
    CNH PerpNC5: ~12bn
    EUR PerpNC7: ~600mm
  • ALLOCATION LIMIT OF NO MORE THAN 200 INVESTORS PER TRANCHE
  • EXPECTED ISSUE RATINGS: Ba2 (Moody’s) / BB (S&P)
  • TIMING: EXPECT TODAY’S BUSINESS

Bank of China’s AT1 is now at 102.50 (6.12%) after its launch in October with a coupon of 6.75% in the largest ever Basel 3 note transaction ever.

Yet, because of its convertibility into CNY, there were some teething problems as how to categorise the bonds as if Coco’s themselves are easily understood.

The main issue is not just with the Basel 3 framework but the constantly evolving rules from the Financial Stability Board for the GSIB’s – Global Systemically Important Banks.

Updated list.

GSIB 2014* note that the percentages are the additional capital surcharges

And the markets are reeling from a potential plan to make senior creditors responsible for losses at these institutions before a taxpayer bail out is initiated which makes holding company bonds toxic because they will be the first to go to safeguard the interest of the bank’s operations. http://www.swissinfo.ch/eng/bloomberg/traders-showing-bank-debt-bias-before-2019-rules–credit-markets/41137920

All this as if we will see another Lehman crisis in the future ?

Yet it does mean we shall have more supply and I think all this makes banking a very expensive business to run and more supply of Coco’s to come. https://tradehaven.net/market/equity-thursday-systemically-importance-institutions-are-good/

Thus, at 6-6.25% ?

ICBC is a better rated bank than Bank of China at Ba2/BB compared to BoC’s Ba2/BB-, for the AT1’s. The bank is generally viewed to be stronger than BoC with better asset quality as well.

This issue will also be marketed to US junk bond investors which gives bond liquidity additional depth.

And given the smaller issue size of USD 5.7 bio compared to  BoC which had a $4 bio anchor investor out of its 6.5 bio of bonds, we should see decent appetite for this paper even if it is year end and even as Chinese equities rally to the moon on rumours of another RRR cut next month and massive short covering activities.

Good luck !