26 April 2019

Asia to see slow Basel III bond supply, Fidelity says

Asia will see a rather slow issuance of Basel III-compliant bonds after the first of its kind came into place early this month, Fidelity Worldwide Investment said.

Asian lenders boast stronger domestic deposit bases and cash positions than their European counterparts, making them unlikely frequent issuers of what is designed in line with the stricter Basel III capital rules, said Fidelity fixed income portfolio manager Bryan Collins, who manages over US$4.3 billion in assets.

“Asia is only just at the beginning of Basel III-compliant issuance,” Collins told a Hong Kong press briefing on Monday. “You’ll probably not see the same amount of issuance [as in Europe] purely because the need to raise capital is relatively lower.”

“The supply of the paper is going to be low, which means the price discovery is going to be a bit longer.”

Industrial and Commercial Bank of China (Asia) Ltd. (ICBC Asia) sold the region’s first Basel III-compliant US dollar bonds in early October. The US$500 million 10-year, Tier 2 subordinated notes include a “non-viability trigger event”, the unclear definition of which has aroused investor concern and complicated pricing for the new securities.

The bonds could be rendered worthless in the event that Hong Kong or Chinese banking regulators consider a permanent write-down necessary to prevent ICBC Asia or its parent Industrial and Commercial Bank of China Ltd. (01398.HK, 601398.CN) from defaulting, Fitch Ratings Ltd. said in an Oct. 1 report. It rated the debt BBB+.

Global watchdogs led by the Basel Committee have sought stringent liquidity rules after the 2008-2009 financial crisis exposed inadequate buffers at banks against losses. The latest guidelines require a clause allowing regulators to write off instruments if a bank is at risk of becoming “non-viable”.

– Contact the reporter at [email protected]


EJ Insight reporter

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