Barclays serves as template for KBC CoCo

By Christopher Whittall LONDON, Jan 10 (IFR) - KBC Bank will seek to emulateBarclays' hugely successful contingent convertible (CoCo) bondof last year, as it prepares to embark on a roadshow for a USdollar benchmark deal that closely mirrors the UK bank'spermanent write-down bond. The Belgian lender has yet to publicly detail the structure,although one lead manager said it would include a permanentwrite-down feature once the bank's Common Equity Tier 1 fallsbelow 7% - the same trigger level used in the Barclays CoCo. Itwill be led by KBC, Bank of America Merrill Lynch, GoldmanSachs, Morgan Stanley, JP Morgan and Credit Suisse. A 10-year non-call five subordinated Reg S Tier 2 benchmarkis expected, with KBC previously announcing last year that itplanned to launch EUR750m of non-dilutive CoCos in the firstquarter of this year. "The structure will be very close to the Barclays CoCo,"said the banker. "The strong demand for the Barclays deal showed there is appetite for these types of issues." Barclays attracted USD17bn of demand for its BBB- ratedTier 2 10-year bullet last November and only paid a coupon of7.625%, despite it being the most aggressive deal yet of itskind. The CoCo has since performed well, narrowing from itsinitial pricing of Treasuries plus 604bp to 550bp over,according to Tradeweb. Bankers said this would likely be the main pricingcomparable, alongside UBS's USD2bn August 2022s 7.625% CoCo. The roadshow will start in Asia next week, largely targetingthe private banks in Hong Kong and Singapore that poured intoCoCos last year to build momentum behind the order book. Anotherlead on the deal said that institutional investors would also bea key target. The main divergence from the Barclays deal will be theabsence of US investors - who took 52% of that transaction. "We will be spending the roadshow explaining KBC's story toinvestors and the structure, and getting them comfortable withthe buffer above the 7% trigger," said the lead. KBC's fully loaded Basel III common equity stood at 11.7% atthe end of September. Another banker on the deal highlightedthat KBC's EUR1.25bn rights issue last December should alsoencourage investors looking at its capital position. The first banker on the deal said KBC opted for a permanentwrite-down feature over an equity conversion structure for twomain reasons. Firstly, the success of Barclays deal, andsecondly, the difficulties encountered around existingshareholder approval for convertible structures. KBC's choice of structure could vindicate Barclays, which met with some scepticism at the time despite its success, due tothe lack of regulatory clarity over bank capital standards. Global regulators have not explicitly endorsed contingentcapital but have asked that all bank capital instruments be ableto absorb losses at the point of non-viability or before anytaxpayer money is injected into a bank. Regulators are expected to clarify capital requirements inthe publication of CRD4 in the first half of this year. In themeantime, KBC joins Barclays in taking a view on the final shapeof the rules by not including contractual point of non-viabilitylanguage in the structure, instead relying on a statutoryapproach.