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  • Dec 26, 2014
  • Updated: 8:53am
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Citic Bank bond Asia's second to fit Basel III

The hybridissue, with 10½-year term, follows pacesetting ICBC (Asia) deal that is compliant with the global regulatory standard for lenders

PUBLISHED : Friday, 01 November, 2013, 3:23am
UPDATED : Friday, 01 November, 2013, 3:36am

Hong Kong-listed China Citic Bank last night closed a hybrid bond that complies with Basel III rules, the second such deal to come out of Asia.

The 10½-year bond is callable after 5½ years. Basel III is a global regulatory standard that sets benchmarks for the capital adequacy of banks and their market liquidity risk.

The lead banks launched the bond yesterday morning, looking to raise US$250 million to US$300 million, with a maximum coupon of 6⅜ per cent. They got a 6 per cent coupon on a US$300 million deal that was well covered, said a banker involved. The deal largely replicates a structure used by Hong Kong-listed ICBC (Asia), which in September launched Asia's first Basel III-compliant hybrid.

Mainland banks will need to replace hundreds of billions in regulatory capital to make it Basel III-compliant, and the Citic Bank and ICBC deals are the first to test offshore investors' interest in the instrument.

"The regulators are happy to see more [Basel III-compliant] issuance in the market, and the Chinese banks have plans already approved by their boards of directors - both offshore and onshore deals are possible," said Bin Hu, a banking analyst at ratings agency Moody's Investors Service. The hallmark of such deals is the ability of a regulator to take a view on an issuer's "viability".

If the regulator - in the case of Citic Bank, the Hong Kong Monetary Authority - decides an issuer is failing, it can force the investors to take a writedown on some or all of the hybrid.

ICBC's mainland parent was able to consolidate the capital raising on the hybrid on its accounts. A clause in the deal allows the HKMA or the China Banking Regulatory Commission to force investors to take a loss on the bond if they believe ICBC, either the parent firm or the subsidiary, to be in trouble.

Citic Bank chose not to allow consolidation up to parent level and, as such, only the HKMA has the power to invoke the non-viability clause. Investors found it easier to get their heads around the single-regulator structure as it is simpler to predict the decisions of one regulator than two.

Goldman Sachs, HSBC and Royal Bank of Scotland led the offer, alongside Spanish bank Banco Bilbao Vizcaya Argentaria, which has a stake in Citic Bank.

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