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StanChart perp bonds drop 13 points as bank passes up call
By Will Caiger-Smith
NEW YORK, Nov 1 (IFR) - Investors were left staring at an up to 13 point loss on Tuesday after Standard Chartered Bank said it would not exercise its early redemption option on US$750m of perpetual preferred securities.
After the January 2017 call date, holders of the 6.409% bonds will be paid 3mL+151bp - equivalent to around 2.39%.
On top of the cheaper pricing, the bonds will also count towards StanChart (HKSE: 2888-OL.HK - news) 's Tier 1 capital requirement until 2021 and Tier 2 thereafter, the bank said. The next call date is in 2027.
The dollar price on the securities dropped to 84 from 97 in secondary trade on Tuesday as investors, who had probably betted on being paid back on the call date, sold the bonds.
"There was definitely an assumption that they would be taken out," said one investor in the US.
Others said the bleeding could continue when Asian markets - where many of the notes are held by private bank investors - open on Wednesday.
"Asian investors view the StanChart name as having a touch of magic," said a FIG DCM banker in New York.
"They see a 6% coupon and the StanChart name and the January 2017 call and say 'what could go wrong'. And today they found out."
US real money investors were also stung by the decision not to call, which breaks with StanChart's previous form, said Cindy Harlow, a bank analyst at Imperial Capital.
"We would strongly question whether from an investor relations standpoint the capital treatment is worth it to let real money investors lose as much as they did today," she said.
The post-call reset coupon is far cheaper for the issuer than the 7.5% it paid on its most recently issued US dollar Additional Tier 1 bond.
That instrument, issued in August, was trading down by around one point in dollar price on Tuesday.
Christopher Daniels, head of capital management at StanChart, told IFR he did not see much chance of the bank passing up calls on other instruments.
"It's an unusual security to have such a low reset coupon so we believe there isn't that much read-across to the group's other AT1 instruments."
The selloff appeared mostly limited to StanChart's bonds. However, similar bonds issued by Royal Bank of Scotland (LSE: RBS.L - news) in 2007 also traded down.
RBS's 7.64% AT1 bonds, callable in September 2017, dropped from 97 to 93 in secondary trading on Tuesday, on fears that the bank could follow in StanChart's footsteps and leave them outstanding.
"They're definitely in the crosshairs," said the FIG DCM banker. "They have the same features - they're AT1s issued in 2007, they are a perp non-call 10 with a low back end, and the bank is weak." (Reporting by Will Caiger-Smith; Editing by Shankar Ramakrishnan)
