Credit ratings sought for floating-rate note issues as competition increases

FIERCE competition among issuers of floating-rate debt instruments for investors' dollars is pushing banks to seek ratings for their issues to boost their appeal.

Increasingly discriminating investors are seeking more than just a solid yield and good track record when they buy floating-rate notes (FRNs) and floating-rate certificates of deposit (FRCDs), according to Thomson BankWatch Asia president Philippe Delhaise. Thomson BankWatch specialises in rating banks and bank issues and its issue ratings have been officially recognised by the Hong Kong Monetary Authority (HKMA).

Issues with a sufficiently high rating from Thomson BankWatch qualify for liquefiable status.

Issues rated appropriately by Standard and Poor's or Moody's Investors Service qualify for liquefiable asset status and, more importantly, for access to the liquidity adjustment facility (LAF).

The recognition of Thomson BankWatch comes at a time when issuance is ballooning. According to the HKMA, holdings of negotiable certificates of deposit have soared. Total outstandings of Hong Kong dollar NCDs at the end of August came to $48.3 billion, representing a growth rate of more than 50 per cent. Growth for all of 1993 was only 24 per cent, the HKMA said.

This means that medium and long-term funding is being squeezed as investors are expected to absorb a surging amount of paper. The territory's largest deposit-taker, Hongkong Bank recently hit the market with a record $3.2 billion FRCD, and wasted no time in qualifying for LAF privileges.

It has been joined by Wharf and Standard Chartered Bank, which both are seeking ratings for a total of $3.1 billion in deals this month.