Credit Agricole announces another Tier 2 SGD issuance for 2023, with an IPG of 5.50%

Credit Agricole S.A. (“Credit Agricole”) announced that it plans to issue a 10NC5 SGD Tier 2 subordinated bond at the initial price guidance (“IPG”) of 5.50%. The bond is expected to be issued on 7 September 2023, with a call/reset date of 7 September 2028 and a maturity date of 7 September 2033. If uncalled, the bond will reset at the prevailing 5-year SORA-OIS plus the initial margin as determined upon issuance.

Credit Agricole is a French banking group operating a variety of business lines under various brands. The business lines are categorized as such – (1) Retail Banking, (2) Asset Gathering, (3) Specialised Financial Services, and (4) Large Customers. It had indicated that it is the top retail bank in the European Union, the top asset manager in Europe, as well as the top provider of financing to the European economy. Credit Agricole is recognized as one of the global systemically important banks (“G-SIBs”) by the Financial Stability Board. 

For the half year that ended 30 June 2023 (“1H23”), Credit Agricole saw its revenues rise to EUR 18,117m in 1H23, increasing by 5.5% against 1H22. Underlying net income similarly increased to EUR 3,941m in 1H23, an increase of 9.1% against 1H22. The bank attributed this to a continuously growing customer base, which saw a net increase of 114,000 customers across 2Q23. Across the various business lines, the bank continues to see growth across the board in 1H23, contributing to higher revenue and net income year-on-year (“YoY”). On the cost front, Credit Agricole has managed its operating expenses adequately, with the cost-to-income ratio falling from 58.2% for FY22, to the current 52.3% for 1H23.

Credit Agricole’s CET1 ratio stands at 11.6% as of 30 June 2023, with a buffer of 340 basis points (“bps”) to the required level. At the Group level, inclusive of the regional and local banks, the CET1 ratio stands at 17.6% with a buffer of 840 bps – the highest among all the G-SIBs in Europe. Credit Agricole intends to maintain the CET1 ratio above 11% to meet its 2025 targets, while at the Group level, it intends to maintain the CET1 ratio above 17%. Its liquidity reserves amount to a total of EUR 404b as of end July, falling by EUR 53b from the previous quarter. Credit Agricole reflected that the removal of additional credit claims had impacted the liquidity reserves by approximately EUR 114b over the quarter. The liquidity coverage ratio stands at 140.3% as of end June, which remains well above the regulatory requirement.

Table 1
Tier 2 SGD Issuances

The Tier 2 SGD paper will be issued under Credit Agricole S.A., instead of being issued at the Credit Agricole Group level. The issuer is rated Aa3 (Stable) by Moody’s, A+ (Stable) by S&P and AA- (Stable) by Fitch Ratings. The new issue is expected to be rated Baa1 by Moody’s, BBB+ by S&P and A- by Fitch.

At the IPG of 5.50%, the new issue does look attractive over the majority of the investment-grade Tier 2 SGD bonds, which yields higher than the recently issued LLOYDS 5.250% 22August2033 Corp (SGD) – despite a lower credit rating by 1 notch. However, we would like to note that the final price guidance (“FPG”) is likely to come down from the IPG. For the previous Tier 2 SGD issuance in 2023 by Credit Agricole (ACAFP 4.850% 27Feb2033 Corp (SGD)), the IPG at 5.20% had adjusted downwards to FPG of 4.85%.

This new issue will be good for investors with interest in the banking space and/or looking for investment-grade issuances. Given the issuance is a Tier 2 subordinated bond, we would like to highlight that the bond is embedded with loss absorption features and might not cater to all investors.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in ANZ 4.500% 02Dec2032 Corp (SGD) and HSBC 5.300% 14Mar2033 Corp (SGD), and the analyst who produced this report holds a NIL position in the abovementioned securities.

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