Asian banks to step up capital call

By Spencer Anderson

HONG KONG, March 30 (IFR) - Bankers are preparing for an onslaught of bank capital offerings from Asian financial institutions, as the first international issue of the year from China looms large.

Last week, China Construction Bank sent requests for proposals to banks ahead of an offshore Tier 2 bond expected to come to market in April. It also has approval to raise up to Rmb20bn (US$3.2bn) of Additional Tier 1 capital overseas.

Bank of Communications also announced plans last week to issue Rmb15bn of offshore AT1.

CCB (HKSE: 0939-OL.HK - news) and BoCom have yet to confirm the currencies for their international offerings, but bankers expect an unprecedented level of issuance from Asian banks will be in US dollars.

HSBC and Standard Chartered (HKSE: 2888.HK - news) each completed large T1 issues in the Yankee market last week, raising a combined US$4.25bn and underlining the depth of global demand for the contingent convertible instruments. Together, the two deals drew orders of US$37bn.

Asian banks have launched a number of AT1 and T2 deals in the past few months, but, so far this year, none have been in US dollars, with most issuers opting for local currencies: Australian banks have raised T1 or T2 capital in Australian dollars, renminbi and even Singapore dollars.

Bankers and analysts disagree over how much will be issued and what form it will take, but are convinced that capital needs are so high in China and India that banks there will have no choice but to look for funding offshore.

"Bank capital is going to be huge," said a Hong Kong-based head of syndication at a global investment bank. "Every global bank with a syndication business out here is chasing these deals. Asian banks have a lot more work to do in terms of meeting capital requirements."

Syndicate bankers say they are paying close attention to the Chinese market. According to Moody's, Chinese banks issued Rmb350bn (US$56bn) in these types of bonds in 2014 and another Rmb355bn is expected this year. Of that, Rmb193bn will be in AT1 and the remaining Rmb161bn in T2 notes.

Besides CCB and BoCom, analysts also expect Ping An (HKSE: 2318-OL.HK - news) and Shanghai Pudong Development Bank to raise capital soon, as they have some of the lowest core T1 ratios among the larger Chinese banks, and may look offshore

India in need

While much of China's issuance will be in renminbi and aimed at the onshore market, India is a market that analysts say will have no choice but to tap the international markets. Fitch has estimated that the Indian banking sector needs to raise as much as US$200bn of regulatory capital come 2019. The Indian Government has said it will help to some extent, but that banks will need to explore private markets for the vast majority of this funding.

"The nature of the market is such that the depth of the domestic market cannot absorb it and, at some point, the banks will have to go abroad to fill that need," said Mark Young, managing director and head of Asia Pacific Financial Institutions 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 say many other banks are no longer substantially more capitalised than Western banks, which now have to raise even more regulatory capital to meet the imminent Total Loss Absorbing Capital regulations. Given that investors consider sovereign risks in many Asian countries to be higher, they are likely to demand bigger capital buffers.

Banks have until 2019 to meet their funding requirements, but TLAC could significantly speed up the timing for Asian banks wanting to issue AT1 and T2 bonds. Once finalised, TLAC will force the largest 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 larger banks have completed their deals. (Reporting By Spencer Anderson, editing by Daniel Stanton, Steve Garton and Dharsan Singh)