Commonwealth Bank of Australia (CBA) attracted some $2bn of demand to a $1.25bn three year 144A/Reg S trade yesterday (Tuesday), with the diversify offered after a series of Canadian benchmarks cited as contributing to the level of demand.

Leads CBA, HSBC, RBC and TD opened books for the US dollar benchmark-sized 144a/Reg S three year trade with IPTs of the mid-swaps plus 33bp area.

This attracted strong demand from European investors as well as “hometown demand” from some Asian banks, according to one of the leads, with the order book reaching around US$1.25bn (€1.14bn, A$1.86bn) by the US open. The book later peaked at around $2bn across 50 accounts, anchored by four orders of $200m-$250m-plus, and the spread was set at 30bp on the back of orders totaling around $1.9bn.

The transaction is the first US dollar benchmark from an Australian issuer since January, when Westpac sold a $2bn five year at plus 58bp. The last US dollar covered bond sold by CBA was a $1.25bn five year in July 2018.

The last three US dollar benchmarks were all Canadian three years trades: FCDQ with a $1bn deal at 34bp on 19 September, RBC two days earlier with $1.5bn at 31bp, and on 5 September HSBC Canada with $1bn at 35bp.

http://news.coveredbondreport.com/2019/09/rbc-fcdq-overcome-dollar-wobbles-to-complete-threes/

A syndicate banker at one of the leads said CBA’s deal was highly sought after for the diversification offered by the Australian name, especially in covered bond format.

“We’ve seen a lot of Canadian supply of late, and the diversity offered here is what ultimately led to such a high order book,” he said, “both in terms of the number of orders, but also the diversity of investors.”

Banks were allocated 69%, official institutions 29%, and asset managers 2%. North America took 57%, Asia-Pacific 9%, and EMEA 34%.

The syndicate banker saw fair value for CBA’s benchmark in the low 30s based on the recent Canadian supply, which he saw at 27bp-30bp.

A syndicate banker at another of the leads said the pricing offered a “notable” 25bp saving versus where a comparable three year senior unsecured trade would clear. He said the deal demonstrated that Australian banks continue to value covered bonds as a low cost funding tool, particularly given that they are issuing increased amounts of Tier 2 to meet recently-introduced regulatory requirements.