Bank of Communications (BoCom) in late September became the first Chinese bank to tap the offshore market to raise Basel III-compliant bonds, with a US$1.63 billion issue of tier 2 securities. The bond is the first international regulatory capital issue by a mainland Chinese financial institution, and the first to be issued in euro and US dollars.

The issue consisted of US$1.2 billion of 10-year non-call five US dollar offering and x500 million of 12-year non-call seven euro offering.

The transaction was planned to be made simultaneously in tranches, but the issuer decided to price the US dollar trade to test the market first before launching the euro portion a day later.

The US dollar offering, which generated an order book of US$1.8 billion, was priced at US treasuries plus 285bp or 5bp tighter than the initial guidance of 290bp to yield 4.628%. The euro offering, cited as Asia’s first Basel III issuance in euros, was priced at 300bp over mid-swaps to yield 3.747%.

The bank will have the option, upon obtaining consent of the China Banking Regulatory Commission (CBRC), to redeem the US dollar tranche in full at the end of the fifth year and the euro tranche in full at the end of the seventh year. If the bonds are not called upon, the coupon on both tranches will be reset.

The US dollar bonds, which carry a coupon of 4.50% in the first five years, will be reset to the prevailing five-year US treasuries plus 285bp in the last five years. Likewise, the euro offering, which carries a coupon of 3.625% in the first seven years, will be reset to prevailing five-year euro mid-swap plus 300bp in the last five years.

Asia dominated the final allocation of the US dollar book with Asian accounts taking 95% of the deal, with the rest going to Europe and offshore US accounts. Banks and insurance companies took 83% of the bonds, private banks 7% and funds 6%.

J.P. Morgan, Citi, Bank of Communications (Hong Kong) and HSBC were the joint global coordinators on the US dollar offering, with Deutsche Bank, Credit Suisse, BNP Paribas and BOCOM International joining as bookrunners. Deutsche Bank, Credit Suisse and Bank of Communications (Hong Kong) were the joint global coordinators on the euro tranche, with J.P. Morgan, Citi, HSBC, BNP Paribas and BOCOM International as bookrunners.

The notes, which will be written off in full permanently if a non-viability event occurs, are rated BBB+ by Fitch Ratings, two notches below BoCom’s A/stable rating.