CIMB Bank Berhad (“CIMB”), the fifth largest bank in Southeast Asia has launched new 5.5-year USD bonds at an initial price guidance (“IPG”) of T+100 basis points (“bps”) with an estimated yield of 2.56%.
The senior, unsecured bond will mature in July 2027 and is expected to be rated ‘A3’ / ‘A-’ by Moody’s / S&P respectively. CIMB bank, the bond issuer, has similar ratings of ‘A3’ / ‘A-’ by Moody’s / Fitch. Net proceeds from this bond offering will be used to finance certain businesses or projects that comply with the CIMB Group SDG bond and sukuk framework.
This SDG bond and sukuk framework is in compliance with the International Capital Markets Association (“ICMA”) Green Bond Principles 2021, the ICMA Social Bond Principles 2021, the ICMA Sustainability Bond Guidelines 2021 and the ASEAN Sustainability Bond Standards.
The issuer is part of the CIMB Group, which has a presence in 15 countries, 629 branches and serves over 17m customers. CIMB Group Holdings Berhad is the second largest financial services provider in Malaysia and 6th largest listed company on the Bursa Malaysia stock exchange. CIMB Group is 47.2% owned by Malaysia’s statutory funds and sovereign wealth funds. Khazanah Nasional Berhad, the sovereign wealth fund of Malaysia, has a 25.6% stake in the CIMB Group.
Recently, the banking giant made commendable strides in its financial performance. During the 9-months ended 30 September 2021 (“9M21”), group profit before tax surged by 162.5% to MYR 2,567m. Net profit increased 98.3% to MYR 1,629m on the back of strong growth in income from Islamic banking operations, which expanded 22.7% to MYR 2,129m. The bank’s net interest margin improved to 1.96% in 9M21 from 1.81% in 9M20. Bank profitability was also quite decent at 4.9% in 9M21, up from 2.5% a year ago.
Looking ahead, the bank is optimistic on growth as more economies in Southeast Asia are reopening gradually. CIMB Group will grow its loan book judiciously and invest in growing its businesses in its Consumer, SME/Commercial, Wealth Management and Transaction Banking segments.
CIMB Group’s capital positions are well above the minimum regulatory requirements. The group’s and bank’s CET1 capital ratios were 14.1% and 13.1% respectively, both higher than the minimum of 4.5%. Other ratios also indicate a strong capital profile. Tier 1 capital ratios were 14.9% and 14.2% for the group and bank respectively, while total capital ratios were 18.2% and 17.1% respectively.
Meanwhile, group liquidity is healthy as its liquidity coverage ratio (“LCR”) amounted to 129.8% in 9M21, exceeding the regulatory minimum of 100%. This marks an improvement from 124.8% at the end of 2020.
In general, asset quality has improved and is likely a reflection of better economic conditions. Its gross impaired loans ratio, which measures gross impaired loans as a percentage of gross loans, advances and financing fell from 2.7% in 9M20 to 2.4% in 9M21.
This bond appeals to investors who are looking for exposure to banks in Malaysia and the broader Southeast Asian economies. With a substantial interest from Malaysia’s sovereign wealth fund in CIMB Group, the bond has a low risk of default with a single-A, high investment grade credit rating. The IPG of T+100bps represents a modest pick-up from other USD bonds along the CIMBMK curve. As a reference, the issuer’s 3.263% bonds maturing this year are trading at a spread of 70 basis points above US Treasuries (~T+70bps).
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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