Tmb Bank Sells Thailand's First Hybrid Bond To Asia, Europe

[george]

TMB Sells Thailand's First Hybrid Bond To Asia, Europe

SINGAPORE: -- Thai state-controlled TMB Bank PCL (TMB.TH) has placed virtually half its latest US$200 million perpetual bond in Asia and half in Europe after attracting an order book of close to US$400 million, people familiar with the deal said Thursday.

The bond - the first hybrid Tier 1 deal from Thailand - priced late Wednesday at par to yield 7.75%. At that level, it was yielding 213 basis points over swaps or 263.3 basis points over U.S. Treasurys.

After a four-day roadshow in Singapore, Hong Kong and London to present both the company and the structure, 52% of the bond was placed with European investors and 48% with Asian buyers.

Funds and asset managers bought the biggest 51% share with banks picking up 34%, insurers and pension funds 9%, and retail and other types of investors taking the rest.

A banker close to the deal said there had been no immediate sales of the paper post-pricing, with the bond quoted early Thursday at 262-258 basis points over U.S. government debt and no offers on the table.

The deal from Thailand's fifth-largest bank by assets marks the borrower's third run at the market in recent months, but in previous attempts, it was looking at raising Tier 2 bonds.

"Obviously, the market wasn't fantastic before...there were a lot of deals that widened in the secondary market," said a banker.

Not that the current deal had the easiest time either. The borrower widened the yield guidance on the proposed bond from an original 7.3%-7.55%, or 175-200 basis points over swaps, after U.S. Treasurys were steamrollered lower Tuesday by a set of strong economic data. Prices fell again overnight.

Several key accounts that the borrower was keen to get into the book were also looking at a more generous return than the one originally on offer, the banker added.

The deal is the first hybrid Tier 1 offering from Thailand since the Thai central bank passed new rules on such issuance in February.

Other banks, including Krung Thai Bank, are expected to follow in TMB's footsteps as the sector seeks capital to match rising lending and looks to get itself in ship shape anticipating increased competition and the 2008 introduction of more stringent capital requirements under the Basel II agreement.

TMB's deal is callable after 10 years, longer than the five-year minimum stipulated by the Bank of Thailand rules. If TMB elects not to repay the debt, the coupon will step up by 100 basis points - the maximum allowed by the central bank rules - over the initial re-offer spread and change to a floating-rate linked to the three-month London interbank offered rate.

The central bank rules also allow Thai banks to suspend coupon payments if the bank expects not to make a profit after interest is taken into account. In other jurisdictions, suspension of the non-cumulative payouts is based on other criteria such as capital adequacy ratios falling below Bank for International Settlement minimums.

A bankers said regulatory difference required some explanation to potential investors, adding that the Thai rule nevertheless provided a "strong deterrent" to coupon suspension since Thai banks would be either unable or loth to signal early that they would likely be making a loss.

TMB will use the proceeds of the paper to repay some THB5 billion ($133 million) in debt sold in 1999 that it inherited from DBS Thai Danu Bank in 2004.

The latest fund raising is set to be followed by a THB12 billion rights issue that TMB is tentatively planning for May. That issue will help the bank increase loan-loss provisions to cut non-performing loans.

The bank also aims to increase its capital adequacy ratio to 12.0% from 9.0% at the end of last year and boost its Tier 1 capital to 8.5% from 6.2%.

Barclays Capital and Singapore's DBS Bank were the lead managers for the latest bond issue. DBS has a 16% share in TMB.

--Dow Jones 2006-04-27