THE state-run Postal Savings Bank of China (PSBC) on September 21 priced the largest bank capital offering in Asia with an additional tier 1 (AT1) securities deal amounting to US$7.25 billion.
The Reg S perpetual non-call five-year deal was priced at par with a similar coupon and re-offer yield of 4.50%. This was at the tight end of the final price guidance of the 4.55% area (+/- 5bp) and 35bp inside the initial guidance of the 4.85% area. This was equivalent to a spread of 263.4bp over US treasuries.
The bonds traded soft in the immediate aftermarket and were initially quoted at 99.25 in the early morning of September 22, but recovered to 99.60-99.70 in early afternoon.
PSBC did not use all of its quota, of up to 50 billion yuan (US$7.6 billion) in US dollar equivalent, for the deal. The issuance exceeded the Bank of China’s US$6.5 billion AT1 in October 2014 and represented the PSBC’s debut transaction in the US dollar bond market. The fund raising was conducted a year after the bank went public following an initial public offering, in which it raised around US$7.6 billion.
“It was pretty impressive that PSBC managed to clear a US$7.25 billion trade in the Reg S market, which also demonstrates just how much this market has developed over the years,” says a banker familiar with the deal. “The rating action by S&P Global Ratings on China was not much of a market mover and did not impact the deal as it was just in line with the other rating agencies.”
“The size of the deal speaks for itself, which is an achievement for PSBC,” adds another banker. “There is still a big pipeline of Chinese AT1 to come into the market.”
The non-cumulative perpetual offshore preference shares have a trigger event which will occur in the following circumstances: if the core tier 1 capital adequacy ratio falls to 5.125% or below; if the China Banking Regulatory Commission decides the bank would become non-viable without a conversion or write-off; or if a public sector injection of capital or equivalent support is necessary.
If a trigger event occurs, the issuer will convert all or some of the outstanding offshore preference shares into H-shares at the effective conversion price, which was initially set at HK$4.83 (US$0.62) per share – subject to adjustment under specified situations.
The securities will pay fixed rate annual dividends, which will be reset periodically. PSBC has the option not to pay dividends on a non-cumulative basis. The distributions on the capital securities are fully discretionary, but in priority to any distributions made to ordinary shareholders.
Proceeds from the offering will be used to replenish PSBC’s AT1 capital to improve its capital structure and to support its business development in the future.
The deal garnered a robust investor demand and the order book peaked in excess of US$13 billion at the final price guidance. In terms of geographical distribution, 97% of the offering was distributed in Asia, including 70% in China, and the remaining 3% in Europe. By type of investors, banks accounted for 52%, corporates and others 19%, fund managers 17%, private banks 8% and insurance companies 4%.
Bank of America Merrill Lynch, CICC HK Securities, DBS, Goldman Sachs, Haitong International, HSBC, J.P. Morgan, Morgan Stanley and UBS were the joint global coordinators for the transaction, as well as joint bookrunners and lead managers along with ABC International, BOC International, CCB International, China Merchants Securities (HK), CITIC CLSA Securities, Credit Agricole CIB, Deutsche Bank, Huarong Financial, ICBC International, Ping An of China Securities (Hong Kong), SinoPac Securities and Standard Chartered.
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