Citic Bank bond Asia's second to fit Basel III

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.