In spite of a rising yield environment and with interest rates set to rise further, BNP Paribas has priced new 10NC5 bonds at an initial price guidance (“IPG”) of 3.30%. The bonds are first callable on 22 February 2027 at 100. As of 11.30am, the book size for this offering has reached over SGD 350.0m.
BNP Paribas is a large banking financial services provider with close to 190,000 employees in 65 countries. It is considered a global systemically important bank by the Financial Stability Board and is ranked in the same bucket as Citigroup and HSBC. The bank has a large presence in Europe with three major operating divisions – (1) Commercial, Personal Banking & Services, (2) Investment & Protection Services and (3) Corporate & Institutional Banking.
According to its 2025 Strategic Plan, BNP Paribas is seeking to consolidate its leadership in Europe and accelerate its clients’ transition to a sustainable economy. As of end December 2021, BNP Paribas was ranked number 1 across EMEA and number 2 worldwide for sustainable finance. In the long run, the bank is projecting a return on tangible equity of more than 11% and targeting a CET 1 ratio of 12.0% (on a Basel 3 fully loaded basis) by 2025. Meanwhile, bank revenue is expected to grow at a CAGR of 3.5% between 2021 and 2025.
BNP Paribas is rated ‘Aa3’ / ‘A+’ / ‘AA-’ / ‘AAL’ by Moody’s / S&P / Fitch / DBRS with stable outlooks from all credit rating agencies. The newly issued bond is expected to be rated ‘Baa2’ / ‘BBB+’ / ‘A-’ / ‘A’ (Moody’s / S&P / Fitch / DBRS). The new bonds are redeemable in certain circumstances such as a Capital Event, Gross-Up Event, Tax Deduction Event or Withholding Tax Event. As a designated Tier 2 capital instrument, the 10NC5 bond may be written down or converted into shares in a distressed situation by resolution authorities.
Group profit rose significantly YoY during the fourth quarter ended 31 December 2021 (“4Q21”). Net income rose to EUR 2,306m, up 44.9% YoY compared to 4Q20. This was mostly driven by a EUR 1,089m drop in the cost of risk as there was a low number of new defaults. BNP also wrote-back some provisions on performing loans.
Group revenues increased by 3.7% YoY to EUR 11,232m in 4Q21, which was higher than usual. Domestic Markets grew revenue by 3.9%, supported by strong growth in its specialised businesses.
Bank capital adequacy is high as its CET1 ratio strengthened to 12.9% in 4Q21 from 12.8% in 4Q20. This exceeded the regulator’s CET1 requirement of 9.23%. Secondly, total loss absorbing capacity (“TLAC”) ratio was also higher than required with a TLAC ratio of 26.0% at 1 January 2022, exceeding the requirement of 22.03%. BNP’s liquidity reserve climbed to EUR 452m in 4Q21 from EUR 432m in 4Q20, but its Liquidity Coverage Ratio dropped from 154% to 143%.
The new bond matures in 2032 but is callable in 5 years. If not called on 22 February 2027, the coupon will reset to the prevailing 5-year SORA-OIS and initial margin. As of 15 February 2022, the 3.30% IPG for the new bond exceeded the 5-year SORA OIS by 160 basis points.
As a pricing reference, the BNP 3.650% 09Sep2024 Corp (SGD) is trading at a yield-to-worst (“YTW”) of 1.95%. The BNP 3.65% 2024’s are ranked senior non-preferred with credit ratings of ‘A-’ / ‘A+’ by S&P / Fitch respectively. Another SGD bond from BNP Paribas – BNP 4.350% 22Jan2029 Corp (SGD) is trading at a YTW of 2.07%. The BNP 4.35% 2029’s are callable on 22 January 2024 and rated ‘Baa2’ / ‘BBB+’ / ‘A-’ by Moody’s / S&P / Fitch.
We think that the new SGD bond is suitable for stable income seekers. However, investors should note that the final price guidance for the new bond would likely be lower than the initial price guidance.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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