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By Spencer Anderson
LONDON, March 27 (IFR) - Bankers are preparing for anonslaught of bank capital offerings from Asian financialinstitutions, as the first international issue of the year fromChina looms large.
Last week, China Construction Bank sent requests forproposals to banks ahead of an offshore Tier 2 bond expected tocome to market in April. It also has approval to raise up toRmb20bn (US$3.2bn) of Additional Tier 1 (AT1) capital overseas.
Bank of Communications also announced plans last week toissue Rmb15bn of offshore AT1.
CCB and BoCom have yet to confirm the currencies for theirinternational offerings, but bankers expect an unprecedentedlevel of issuance from Asian banks will be in US dollars.
HSBC and Standard Chartered each completed large AT1 issuesin the Yankee market last week, raising a combined US$4.25bn andunderlining the depth of global demand for the contingentconvertible instruments. Together, the two deals drew orders ofUS$37bn
Asian banks have launched a number of AT1 and T2 deals inthe past few months, but, so far this year, none have been in USdollars, with most issuers opting for local currencies:Australian banks have raised AT1 or T2 capital in Australiandollars, renminbi and even Singapore dollars.
Bankers and analysts disagree over how much will be issuedand what form it will take, but are convinced that capital needsare so high in China and India that banks there will have nochoice but to look for funding offshore.
"Bank capital is going to be huge," said a Hong Kong-basedhead of syndication at a global investment bank.
"Every global bank with a syndication business out here ischasing these deals. Asian banks have a lot more work to do interms of meeting capital requirements."
Syndicate bankers say they are paying close attention to theChinese market. According to Moody's, Chinese banks issuedRmb350bn (US$56bn) in these types of bonds in 2014 and anotherRmb355bn is expected this year. Of that, Rmb193bn will be in AT1and the remaining Rmb161bn in T2 notes.
Besides CCB and BoCom, analysts also expect Ping An andShanghai Pudong Development Bank to raise capital soon, as theyhave some of the lowest Core Tier 1 ratios among the largerChinese banks, and may look offshore.
INDIA IN NEED
While much of China's issuance will be in renminbi and aimedat the onshore market, India is a market that analysts say willhave no choice but to tap the international markets.
Fitch has estimated that the Indian banking sector needs toraise as much as US$200bn of regulatory capital come 2019. TheIndian Government has said it will help to some extent, but thatbanks will need to explore private markets for the vast majorityof this funding.
"The nature of the market is such that the depth of thedomestic market cannot absorb it and, at some point, the bankswill have to go abroad to fill that need," said Mark Young,managing director and head of Asia Pacific FinancialInstitutions at Fitch.
"We haven't seen that yet, but it's only a matter of time.India is one of the markets with the largest capital need."
Outside of the region's two biggest economies, analysts saymany other banks are no longer substantially more capitalisedthan Western banks.
Emerging markets banks have so far been carved out of newproposals that could require global systemically importantbanks, or G-SIBs, to have a safety buffer of Total LossAbsorbing Capacity equivalent to at least 16%-20% ofrisk-weighted assets from January 2019.
Given that investors consider sovereign risks in many Asiancountries to be higher, they are likely to demand bigger capitalbuffers.
Banks have until 2019 to meet the new proposals, but TLACcould significantly speed up the timing for Asian banks wantingto issue AT1 and T2 bonds. Once finalised, TLAC will force thelargest Western banks to issue sizeable amounts of these bonds.
Asian banks will want to tap the market before this happens,for fear that investor demand could be saturated once the largerbanks have completed their deals. (Reporting by Spencer Anderson, Editing by Steve Garton)
