* Chinese banks issue senior dollar debt to set benchmarks
* Bankers see up to US$25bn in capital-eligible securities
* Some US$8bn could be sold as dollar-denominated
By Neha D'silva
HONG KONG, March 4 (IFR) - Bankers and analysts believe the
recent spate of US dollar bond issues from China's banking
sector is an effort to lay the groundwork for the sale of more
Basel III-compliant securities.
Dollar offerings from Chinese banks could total as much as
US$8bn this year, as issuers begin to ramp up their overseas
profiles with an eye on building out their regulatory capital,
according to bankers pitching for roles on the financings.
"The goal is to develop a curve for the Chinese banks to
raise capital," said a credit analyst focused on Asian banks.
"Banks will look to raise Tier 2 in the interim and Tier 1
ultimately," the analyst added.
ICBC International, a unit of Industrial and Commercial Bank
of China, sold a US$650m three-year Reg S dollar bond on
February 25, while, earlier this year, Bank of Communications
and Bank of China, Hong Kong branch, priced senior unsecured US
dollar bonds. In December, Agricultural Bank of China (Hong
Kong) sold US dollar senior bonds.
This wave of issuance came after two subdued years for
senior bond sales by Chinese lenders, without a single overseas
benchmark in 2012. ICBC Asia and China Citic Bank issued Basel
III-compliant Tier 2 capital in US dollars last year, marking a
tentative beginning to overseas capital raisings under the new
Some market participants viewed ICBC International's latest
offering as preparation for forthcoming bank capital outings,
noting that the onshore market has yet to embrace perpetual
bonds or Basel III-compliant structures.
One banker that covers financial institutions in China said
it is no coincidence that the bank came to market now. According
to this banker, regulators have given the green light for ICBC
to issue up to Rmb80bn (US$13bn) in Tier 1 subordinated debt
this year. The approval allows a quarter of that to be sold
"ICBC is the only one that has already secured a board
approval and regulatory approval to sell Tier 1, but regulators
have already approved Rmb240bn in Basel III-compliant issuance
this year," said the banker.
The bank's Hong Kong subsidiary, ICBC Asia, was also the
first to establish a benchmark for Basel III compliant debt in
dollars in the region. In early October, ICBC Asia sold a
10-year US$500m subordinated bond that included loss-absorption
US$25BN THIS YEAR
All added, debt capital markets bankers estimate China's
lenders could issue more than US$25bn of bank capital this year
alone, mostly either onshore or in equities.
One predicted, however, that some US$8bn could reach the
overseas bond markets in the near future, after a rise in
onshore rates left the US dollar market looking more attractive.
The timing, for now, remains unclear. Yet, debt capital
markets bankers have been actively pitching banks in Beijing and
Shanghai. "Easily offshore investors could see US$8bn or more in
subordinated debt from Chinese banks this year," said another
The big four Chinese banks - Bank of China, ICBC,
Agricultural Bank of China and China Construction Bank - do not
have an urgent need to raise capital, with risk-adjusted capital
ratios set to stay at 6%-7% over the next couple of years,
according to Standard & Poor's.
Deal-flow will also depend on market conditions.
Typically, investors want a premium for buying Basel
III-compliant bonds because of their loss-absorbing features,
making such instruments expensive for issuers in volatile
"This is obviously not a good time; they should have done it
a little earlier. However, a lot of issues are stuck with the
government awaiting approvals," a debt capital markets banker
However, as issuers wait for approvals and better market
conditions, senior deals will provide fresh benchmarks when the
time is right to issue capital bonds.
ICBC International's issue priced on February 25 to yield
162.5bp over three-year US Treasuries, narrowing from an initial
spread of 180bp over.
(Reporting By Neha D'silva; editing by Christopher Langner and