Credit where credit’s due. ICBC fully deserves all the applause it has been getting over the past week since it completed a landmark additional tier one trade. Pricing was top-notch; distribution was balanced. It’s rare for a transaction of that size ($5.7bn) and of that significance to have almost everyone singing its praises.
The perpetual non call five trade was definitely made for the headlines. It ranks as the first AT1 globally to feature three currencies, and the Rmb12bn CNH portion is also the largest offshore renminbi deal not issued by the Chinese government.
Several bankers in Asia pointed out that the latter was an outstanding achievement, considering the second biggest deal on that list is barely a third of the size — China Development Bank Corp’s Rmb4.5bn ($732m) three tranche bond from November 2013.
Coupled with the fact that offshore RMB deposit volumes have reached a record level this year, the renminbi bulls claim this is clear indication that the CNH bond market has fully come of age and is now capable of more raising borrower’s US dollar benchmark sized trades.
It’s a nice idea. But while the numbers are encouraging, ICBC was not an ordinary deal from a run-of-the-mill issuer. Instead, this was an AT1 offering issued in preferred share format from a highly regulated member of the group of Chinese big four banks, with bookrunners soft sounding investors for more than a month before it priced.
If that wasn’t enough, ICBC’s AT1 is not even strictly a bond, a fact that was reflected in the demand. A fair share of equity investors participated in the trade — as they did for Bank of China's $6.5bn AT1 two months ago — which contributed greatly to the huge order book.
While the leads did not reveal just how many of what they call "non-traditional" fixed income investors were in the book, market talk put it anywhere from 20% to half. Using an unconventional deal such as a preferred share AT1 as a broader reference for straight bonds is simply incorrect.
It’s also worth mentioning the overwhelming presence of Greater China life insurance companies in the transaction. They bought 45% of ICBC’s RMB tranche. These insurance firms, mostly from Taiwan, have been actively gobbling up anything that is RMB-denominated in recent months, partly due to a need to put their growing renminbi deposits into work.
And while they have been buying high yield, their preference is for longer dated investment grade offerings – and there’s not much of that in the dim sum bond market.
Of course the offshore renminbi bond market has grown at a record pace this year. So far dim sum bond volumes stand at Rmb225bn, close to double the amount raised last year, according to data from GlobalRMB. And the sector is widely expected to post even stronger numbers next year.
Where the bulls are wrong, however, is to cite ICBC's trade as an example of that growth. Instead, a true marker for the sector would be when a non-government-linked corporate decides to issue a conventional dim sum bond at a large size. Considering the UK government was only able to raise Rmb3bn when it issued in October, it looks like we are some way off that.
So three cheers for ICBC. But it’s too early to crack open the rice wine for offshore renminbi bonds.