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Great Eastern Life Assurance this week became the first Asian insurance company outside Australia or Japan to sell a subordinated bond. The Singaporean borrower raised S$400m ($310.5m) in a deal that bankers hope will encourage regulators across Asia to let insurers turn to the debt markets to shore up their capital positions.
Singapore is rare among Asian countries in having explicit capital regulations for insurance companies that allow the use of various forms of debt, as well as equities, to function as capital.
But no issuer had tested the regulations before, and the lead managers held long discussions with the Monetary Authority of Singapore while they were ...view middle of the document...
The deal was priced with a coupon of 4.60%, equivalent to 135bp over the Singapore swap offer rate. Great Eastern has an option to call the bonds after 10 years but if it does not exercise the option the coupon will reset to 135bp over the swap offer rate at the time.
The price of 135bp over Singapore's swap offer rate is equivalent to around 170bp over dollar Libor, well inside where the borrower could have priced the deal in the international market, said a banker close to the deal.
Great Eastern mandated banks for the deal in the last quarter of 2010. The leads spent their time not only discussing the structure with the MAS, but also making sure the deal would get the best ratings. In the end, Standard & Poor's rated the issue A+, one notch below the AA- rating it gave to Great Eastern's MTN programme.
The issuer had been considering this type of issue for a long time, but Cheong was reluctant to commit to selling another subordinated bond in the near future. Still, the benefit of the structure was obvious, he said.
"Equity is the most expensive form of capital, and interest rates are so low that it seemed an opportune time to issue a deal," said Cheong.
Bankers now hope that, by showing that Singaporean insurance companies have more flexibility in managing their capital levels than their rivals elsewhere in the region, the deal will encourage insurance regulators across Asia to allow companies to sell subordinated bonds.
Singaporean accounts bought 88% of the issue, and investors in Europe and the rest of Asia bought the remaining 12%. Private banks -- which were not offered a rebate -- bought 49%, fund managers 19%, insurance companies 19% and other investors the remaining 13%.
The deal could have attracted more European demand if the books had been held open after Asian trading hours on Wednesday, according to a banker close to the deal.
But another factor that would have been likely to limit demand from Europe is that the bond can only clear through CDP, a subsidiary of the Singapore stock exchange.
By Matthew Thomas
Tej Company Profile - Great Eastern Holdings Limited
reat Eastern Life Assurance Co Ltd (GE Life) is the oldest life assurance company in Singapore established since 1908. Through its 20,000-strong agency force, it offers every principal form of life, personal accident, health insurance and annuity plans to individuals. It is also involved in loans, investment management and other related insurance business. It also operates in Malaysia and Indonesia. The Company is the largest asset-based life insurance company in Singapore and Malaysia. Currently, one of its main ...