SMBC Sydney reflects on its record-breaking domestic deal

Sumitomo Mitsui Banking Corporation Sydney Branch (SMBC Sydney)’s latest transaction was the largest-ever Australian dollar deal from a bank with offshore parentage. It was also the largest credit deal since the onset of the COVID-19 crisis.

Momentum built in the Australian dollar market in the second half of May, with senior deals priced by a handful of banks either in Kangaroo or domestic format through local branches. However, SMBC Sydney’s A$2.4 billion (US$1.7 billion) multi-tranche deal eclipsed all for volume. The issuer says interest in the deal exceeded its expectations.

Only a Macquarie Bank deal from February 2020 sits above it on the list of largest Australian dollar senior deals by banks outside the domestic big four (see table). The absence of issuance by the major banks has opened up significant volume opportunities for other financial institutions, particularly those seeking to expand their local balance sheet in the wake of the crisis.

The deal was SMBC Sydney’s second in the Australian dollar market so far in 2020, after an A$800 million, two-year floating-rate note print in February. The borrower says it may be active again before the year is out, depending on credit growth. Its latest deal was its first in Australian dollars to include a fixed-rate tranche.

Largest-ever Australian dollar senior bank deals, excluding big-four banks*

Pricing dateIssuerTenor(s)Total volume (A$m)Margin (bp/swap)
6 Feb 20 Macquarie Bank 1 & 5 2,500 41 & 84
2 Jun 20 SMBC Sydney 3 & 5 2,400 95 & 115
14 Jun 19 Macquarie Bank 1 & 3 2,250 43 & 75
5 Jul 05 Wells Fargo 5 2,000 23
24 Mar 11 Lloyds TSB Australia Branch 3 1,850 220

*Excluding government-guaranteed deals
Source: KangaNews 11 June 2020

Source: SMBC Nikko, TD Securities 11 June 2020

Deal pricing

Issuer name: Sumitomo Mitsui Banking Corporation Sydney Branch
Issuer rating: A/A1/A
Pricing date: 2 June 2020
Total volume: A$2.4 billion
Geographic distribution: see chart 1
Distribution by investor type: see chart 2
Lead managers: Commonwealth Bank of Australia, Macquarie Bank, SMBC Nikko, TD Securities, Westpac Institutional Bank

Three-year FRN tranche
Volume: A$1.2 billion
Coupon rate: 3m BBSW +95bp
Issue/re-offer price: par
Margin to swap: 95bp/3m BBSW

Five-year FRN tranche
Volume: A$1.025 billion
Coupon rate: 3m BBSW +115bp
Issue/re-offer price: par
Margin to swap: 115bp/3m BBSW

Five-year fixed rate tranche
Volume: A$175 million
Coupon rate: 1.5%
Issue/re-offer price: 99.689%
Issue yield: 1.565%
Margin to swap: 115bp/s-q

Source: SMBC Nikko, TD Securities 11 June 2020

“During the COVID-19 crisis, we have undertaken a considerable amount of work to support the borrowing and liquidity requirements of our long-term clients. This increase in loans gave us the opportunity to come to the Australian debt market to raise sustainable term funding from our investors.”

MATTHEW HEDDOU HEAD OF FUNDING AND ALM SMBC SYDNEY

“We have seen increased demand from our customers in recent months. SMBC Sydney takes a long-term view of its relationships and expects this to continue. This is the first public debt issuance for the SMBC Group since the COVID-19 crisis began, which shows its importance. The success will lead to more issuance in other markets from SMBC.”

MATTHEW HEDDOU SMBC SYDNEY

“SMBC Sydney has been building a strong presence and curve in the domestic market for more than 10 years. Comps provided for this deal were domestic rather than offshore, given the specific differences in liquidity and facilities offered in Australia compared with the rest of the world.”

MATTHEW HEDDOU SMBC SYDNEY

KangaNews is your source for the latest on the COVID-19 pandemic’s impact on Australasian debt capital markets. For complete coverage, click here.