January 9, 2017 / 2:33 AM / 7 months ago

Aussie major banks make strong start in offshore bond market

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* Westpac and NAB tap US market for first bond sales of 2017

By John Weavers and Mike Gambale

SYDNEY, Jan 9 (IFR) - Two Australian major banks overcame intense competition last week to access the buoyant US dollar bond market, where investors lapped up the latest offerings from the country's well-regarded Double A rated issuers.

The Big Four like to open the year strongly and stay well ahead of the run rate in light of their substantial wholesale funding requirements.

For annual bond funding, Commonwealth Bank of Australia and Westpac have needs of around A$30 billion ($21.6 billion) equivalent, while National Australia Bank has issued A$25-$30 billion and ANZ has raised A$20-$25 billion.

Up to two thirds of these totals are raised offshore, mainly in the deep US dollar and euro markets, reflecting the shallowness of the local bond scene, as well as Australians' relatively low bank deposit holdings.

Westpac (Aa2/AA-/AA-) was one of six international banks to issue US dollar bonds on the first trading day of 2017, with a US$1.75 billion sale of dual-tranche five-year senior unsecured SEC registered notes. The arrangers were Bank of America Merrill Lynch and HSBC.

The $1.25 billion 2.8 percent January 11 2022s attracted an order book of $3 billion and priced 88bp wide of Treasuries, well inside 105bp area initial price thoughts, for a 4bp new-issue concession over Westpac's 2.0 percent August 2021s. The $500 million floating-rate notes were three times oversubscribed and priced at three-month Libor plus 85bp.

Westpac is the only Australian major with SEC registration rights, meaning it can issue bonds off its global medium-term notes programme and attract a wider pool of offshore investors.

Identically rated NAB followed a day later with a hefty US$3.5 billion sale of five-piece senior unsecured 144A/Reg S bonds on the US high-grade market's busiest day since May 2016. Citigroup, Morgan Stanley, NAB and RBC were joint leads on the trade.

The $1 billion 2.25 percent three-year, the $1 billion 2.8 percent five-year and the $750 million 3.5 percent 10-year fixed-rate tranches priced 78bp, 90bp and 108bp wide of Treasuries versus 90bp area, 105bp area and 120bp area initial price thoughts, respectively.

The $250 million three-year and $500 million five-year floating-rate notes priced at three-month Libor plus 59bp and 89bp. NAB PREMIUM NAB's trade secured a combined order book of $6.7 billion, while the new issue concessions were seen at 3bp, 2bp and 4bp for the bonds of three, five and 10 years, respectively.

The five-year notes swapped back into Australian dollars at around 115bp over the bank bill swap rate (BBSW) benchmark, in line with the current clearing rate for new major bank five-year paper in the domestic market.

The three-year swapped back about 78bp wide of BBSW, 10bp or so inside the highs 80s local three-year clearing rate. The better pricing available in the US for shorter-dated paper largely reflects the relative flatness of the Australian curve.

NAB paid 2bp more than Westpac's five-year Global, as the former continues to suffer, at the margin, from historical difficulties, including its ill-fated purchase of Clydesdale Bank.

The next day NAB crossed the Atlantic to issue a 300 million Swiss france ($297 million) 0.30 percent 8.75-year (October 31 2025) note at mid-swaps plus 21bp.

Also on Thursday CBA kicked off its 2017 issuance programme in the UK where it took advantage of the sterling covered market's compelling pricing levels.

HSBC, Nomura and CBA were joint leads for the 1.125 percent short five-year (December 22 2021) Eurobond offering that exceeded £250-£300 million size expectations with a £350 million ($434 million) print.

The notes priced in line with Gilts plus 67bp guidance, inside both the bank's US dollar curve and euro covered curves.

Meanwhile, ANZ is targeting the Japanese market to issue its first bonds of the year with Mitsubishi UFJ Morgan Stanley and Mizuho Securities mandated for seven-year Samurai notes, which are being marketed at 11bp-13bp over yen offer-side swaps. Other tranches may be added to the issue, which will price as early as January 11. (Reporting by John Weavers; editing by Daniel Stanton and Vincent Baby)

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