JULIUS BAER GROUP SGD AT1
– Initial price thoughts low-mid 6% for a PerpNC5 AT1
– Strong interest received so far
– Timing Wednesday at the earliest
Thoughts:
So after more than 2 weeks has passed since the roadshow, we finally get official pricing parameters for the deal. Hearing that initial pricing thoughts thrown about by the issuer/lead to clients was 5.5%.
As mentioned, the closest comp is the BAERVX4.25% Perp NC5 (in CHF) which trades much wider in credit spread terms. It is currently indicated at 104.00 bid which works out to L+394 or asset-swapped equivalent of SIBOR+ 469. That is 7.27% in SGD terms, hardly the most flattering comp for the new SGD issue. It is also worth noting that the write-down trigger for the new issue (7%) is higher than the 5.125% on the CHF comp.
It was unsurprising that investors weren’t too excited at the initial 5.5% number. At mid-low 6%, it certainly appears more palatable, but still not what I would call a cheap bond. Perhaps the lead is counting on the fact that with a 6% handle, it would be the highest yielding COCO by a mile in our (somewhat limited) AT1 space where the only alternatives are the AT1s of the local banks. We shall see…
IMO this should come with at least a 7% handle. As you point out the existing CHF AT1 swaps into 7.3% in SGD terms, and adding some premium for the high contractual trigger gives fair value in the mid-high 7% range. The USD AT1s from other European banks (e.g. HSBC, UBS) seem a better bet especially when swapped back into SGD.
That being said, there will be private banking investors enticed by the IPTs of low-mid 6%…
Local Investor,
Initial price guidance of 6.375% has just been released. Let’s see how investors take to this. It will always look optically cheap to the Sing Bank AT1s which are higher rated anyway. Also worth noting that the local bank AT1s are not Cocos, i.e. they are not converted into equity or written off upon hitting the trigger level on the CET1 ratio. Instead, they are Point of Non-Viability (PONV) instruments which means that the central bank has the discretion to determine when/whether the bonds are written down as compared to Cocos which have a hard trigger.
U.K. Regulator Blocks CoCo Sales to Individual Investors. http://www.bloomberg.com/news/articles/2014-08-05/u-k-regulator-blocks-coco-sales-to-individual-investors
*** JULIUS BAER GROUP SGD AT1 – UPDATE #4 ***
– Initial price guidance 6.375% area
– IOIs in excess of SGD 500m
– Deal size SGD benchmark (tbc)
– Pricing as early as today
SGD T1 comps
DBSSP 4.7 12/29/49 @ 3.96% A3/-/BBB NC19
OCBCSP 3.8 08/29/49 @ 3.83% A3/BBB-/BBB NC20
UOBSP 4 ¾11/29/49 @ 4.06% A3/BB+/BBB NC19
UOBSP 4.9 07/23/49 @ 3.94% A3/BB+/BBB NC18
*** JULIUS BAER GROUP SGD AT1 – UPDATE #5 ***
– Final price guidance 6.00% area (+/- 10bps ; WPIR)
– Orderbooks c. SGD 1.8bn
– Deal size SGD benchmark (tbc)
– Pricing today
Hearing bonds were quoted in a 100.45-100.55 context. Guess the strong order book gave some positive momentum to the price action.