Malaysia leads the way in Basel III debt

Malaysia is poised to host Asia's first public issue of loss-absorbing bank debt, so-called bail-in bonds, since the region began the transition to Basel III standards earlier this year.

Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2013/5/24/business/20130524082944&sec=business
Published: May 24, 2013

Source from (Business Times): http://www.btimes.com.my/Current_News/BTIMES/articles/20130524011820/Article/index_html
Published: May 24, 2013

CIMB Bank has received preliminary approval from Bank Negara Malaysia for a subordinated ringgit bond that will count towards its Tier 2 capital, and may launch the deal in the next few weeks.

There is also talk that Public Bank may follow suit with a similar Basel III-compliant issue.

If the deals do materialise in the coming weeks, they promise to set a template as the first in Asia, excluding Japan and Australia, since regulators from India to China introduced Basel III rules in January.

Under the new, stricter capital requirements, subordinated bonds require loss-absorption features if they are to count towards a bank's capital ratios, ensuring that holders are "bailed in" through writedowns or conversion to equity before any public funds are used to bail out a bank.


Given their fairly well-capitalised levels, Malaysian bankers had not expected a Basel III-compliant structure to hit the markets so soon.

CIMB, however, is in talks to buy Bank of Commerce of the Philippines for an estimated US$296 million (RM897 million), which may have hastened its plans to raise bank capital.

"No bank wants to be the first as it will have to cough up a lot more to compensate the investors for that write-off feature. There is really no proper benchmark in the Asian markets," said one rival banker.

Asia's first Basel III-compliant bond dates back to November 2011, when Hong Kong-based ICBC Asia priced a 1.5 billion renminbi (US$236m) Tier 2 dim sum bond that will write down to zero if the bank becomes non-viable.

That issue, however, came at a time of surging enthusiasm for renminbi exposure, and investors also assumed - rightly or wrongly - that there was little chance of ICBC Asia's state-owned parent allowing the unit to fail.

More clarity has since emerged on local interpretations of Basel III rules, but no Asian lender has yet followed ICBC Asia's lead with a public sale.

A small Chinese lender is also working on the first loss-absorbing Tier 2 bond in the country's restricted domestic market, but a deal in Malaysia would offer a more representative benchmark for the wider region. Reuters