Malaysia’s biggest bank has emerged in the US-dollar market as a poster-child for the ultra-safe Asian banking sector. Maybank’s two appearances this year also underlined the scarcity value attached to Malaysian credits in the international markets.
Source: Reuters/Kin Cheung
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Malaysian lenders have never been known as frequent borrowers in the US-dollar market. However, 2012 was a banner year for Malaysian issuers, and Malayan Banking stood out as a pioneer.
Malaysia’s biggest bank tapped several markets this year as it replenished its coffers to cope with 22% loan growth last year. That pace may have slowed in 2012, but Maybank’s books are still growing at an annual pace of approximately 15%, keeping its funding team under pressure.
The bank holds the honour of having reopened the dollar markets for Malaysian banks with a benchmark deal at the start of the year. It has also smartly tapped multiple currencies, identifying the best arbitrage opportunities and swiftly taking advantage.
It went to the Euroyen market in late May, raising ¥5bn (US$62m), and tapped the Hong Kong-dollar market three times with deals in the HK$500m–$600m (US$64.5m–$77.4m) ballpark.
“We have had a strategy of preparing early according to our funding needs, and this has given us the ability to take advantage when opportunities appeared,” said Wong Yee Fun, head of corporate finance and capital management at Maybank. This readiness allowed the bank to secure long-term funding at record-low yields, making the most of the low-rate environment, she added.
That approach has served Maybank well this year, as the bank has proven itself adept at spotting interest in its debt and placing bonds privately. In May, market players were left scratching their heads as the Malaysian lender privately placed a jumbo US$500m two-year bond with a 2% coupon.
That transaction was not only much larger than the usual private placement, but, at 2%, it came at a spread equivalent to 175bp over US Treasuries at a time when Maybank’s outstanding debt was trading at 235bp over.
“The issuer has gone a long way since we did its first Hong Kong-dollar private placement and, subsequently, set up its MTN programme, having tapped that currency nine times and fully utilised the market through both private and public transactions,” said Malcolm Mui, executive director, head of investment-grade syndicate at Nomura, which led several of Maybank’s transactions, including its Lower Tier 2 US-dollar bond, priced in September.
Maybank, indeed, did such a good job of spotting arbitrage opportunities and jumping on them, that even rivals in Kuala Lumpur have come to admire it.
“Maybank is Malaysia’s best lender and, when it issues, it is just a matter of price, not of demand,” said a syndicate banker at a rival institution in Kuala Lumpur. He added that with its dollar forays, Maybank proved its timing was right, and allowed others to follow. “They reflected strong appetite for Malaysian credits,” he said.
Indeed, only after Maybank priced a five-year US-dollar deal in February did other lenders from the country come to the Reg S market. By July, CIMB, Hong Leong, RHB and even the Malaysia Export Import Bank had all tapped the US dollar market, making 2012 one of the busiest years in history for dollar bond sales from Malaysia’s financial sector.
Still, Maybank did not limit its efforts to the dollar market. The lender also added to an equity financing spree in Kuala Lumpur with the largest follow-on share sale in Malaysian history, raising M$3.7bn (US$1.2bn) in the second week of October with the sale of 412m shares at M$8.88 apiece. That deal also came in tight, at a meagre 1.2% discount to where the stock was trading the week before.
Maybank was also the first to explore the 12-year tenor for old-style subordinated debt in the Malaysian and Singapore markets, a model that allowed the bank to raise more than M$2.4bn and other lender would also follow later.
It also raised a similar amount of subordinated debt in the US-dollar market, with a US$800m 10-year non-call five LT 2 bond that became the largest capital-eligible transaction of a Malaysian bank since 2007.
That is also the only groundbreaking transaction from Maybank this year that its peers have yet to repeat. The bonds, priced at an ultra-tight 260bp over five-year US Treasuries, were increased from the original target size of US$500m to US$800m, but have yet to trade inside the reoffer spread, having been quoted on October 23 at 267bp/260bp over US Treasuries.
This had some bankers crying foul, indicating that the secondary performance would have hindered other similar deals of Malaysian lenders. For the issuer, however, the deal worked marvellously.
With a coupon of 3.25%, the notes pay only 25bp more than the five-year senior unsecured bond that Maybank priced in February. Also, given that Maybank can still count the subordinated bond to its regulatory capital for its life, the lender has reinforced its capital adequacy ratio just before Malaysia starts rolling out Basel III requirements.
It also paid a smaller spread over its senior unsecured debt than even its better-rated Singapore peers. In late September, when the subordinated bonds were priced, they came at a spread of only 100bp, while DBS, considered one of the most solid banks in the world, had 10-year non-call five Lower Tier 2 bonds trading 120bp wide of its senior unsecured five-year paper.
However, Maybank’s solid reputation, coupled with the scarcity value of top Malaysian credits in the international markets, again led to a heady oversubscription. With US$4.5bn in the book, Maybank had little trouble increasing the size of the deal or pricing super tight – and that is a trick its peers would love to replicate.
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