Here are the details of the deal:
Issuer: BNP Paribas SA
Subordinated notes
Issuer ratings: A1/A+/A+
Expected issue rating: Baa2/BBB/A
Optional redemption: Issuer may redeem notes at par upon the occurrence of a capital event, tax deduction event, withholding tax event or gross-up event
PONV: Statutory approach with risk factor references to BRRD and French banking law
Reg S
JLMs: BNP, OCBC, UOB
Coming hot on the heels of the well-received Julius Baer AT1 deal 2 weeks ago, we have yet another European financial institution issuing a Basel 3 compliant SGD bond. This is a 10NC5 Tier 2 issue with PONV (point of non-viability) write down features as opposed to a capital ratio trigger. It is loss absorbing, a common feature among all the new Basel 3 instruments as banks move towards a “bail-in” approach after the crisis put external parties like taxpayers on the hook for losses.
How does this look on a relative value basis? There is a lack of good comparables in the SGD Tier 2 space. Using the UOBSP 3.5% 05/26 callable 05/20 as a comparison, those bonds are currently indicated at 3.04% yield (to the 2020 call date). The issue rating on that is A2/BBB which is 3 notches higher on Moody’s and same by S&P, compared to the new BNP 10NC5.
Does a ~150bps pick up compensate for the ratings differential? Even after accounting for the 7 month longer call date on the BNP issue, the initial price guidance does appear a tad generous. With the widely anticipated ramp up in the ECB’s QE in December, the positive macro backdrop for European financials and other European assets in general could prove to be supportive for this deal.