The second leg of a global funding diversification strategy put in place by Manulife Financial earlier this year played out on Monday when the insurer priced a 500 million subordinated debt offering in Singapore dollars.
The first step was taken last March when Manulife raised US$1.75 billion via a two-part offering of senior notes with US$1 billion having a term of 10 years and US$750 million having a term of 30 years. Manulife hadn’t been a borrower in that market since September 2010.
On its first offering in Singapore, Manulife Financial, which has extensive operations in Asia, became one of the very few Canadian companies to have sold bonds denominated in S$. At the current exchange (one S$ equals C$0.94) Manulife raised about $470 million of what is nominally 10-year money.
Manulife REIT seen poised to price $470 million Singapore IPO at top endManulife Financial Corp beats expectations with 45% jump in earnings on Asian sales
For borrowing in S$, Manulife was required to pay 3.85 per cent. That rate applies for the first five years that the notes are outstanding: after May 25, 2021, the yield is set at a spread of 197 basis points over the prevailing five-year SGD Swap Rate. The expectation is that the notes will be redeemed on May 25, 2021.
Aside from providing a new source of capital, Manulife gets to count the funding as part of Tier 2B capital. “This issuance marks our first debt transaction in Asian capital markets, and further supports our branding and banking partnerships in the region,” said Steve Roder, the insurer’s chief financial officer, noting that when combined with its recent US$-denominated offering, “this transaction is an important part of our global strategy to diversify funding sources and to broaden our investor base.”
That strategy was discussed internally in 2015 and implemented earlier this year. The basic principle was for Manulife to diversify its funding sources, to expand its investor base and to align its funding activities with its global footprint.
A spokesperson noted that after taking into account the size of the Canadian market, the conclusion was reached that it would be “prudent” to access markets outside Canada and to establish alternative sources of funding. “Given our significant and growing global footprint, we see the opportunity to leverage and enhance our business and branding reach by funding in markets beyond Canada,” he added.
So why Singapore? A couple of reasons were at work: the region is an important part of Manulife’s operations given that it supplies about one-third of its earnings; the market was also able to provide “attractive pricing” for the subordinated debt.
Given the location and denomination of the borrowing, two locally based firms, DBS Bank Ltd. (that country’s former Development Bank) and Standard Chartered Bank were named as joint lead managers while the ANZ Banking Group Ltd, was made a co-manager.
Indeed DBS Bank wasn’t chosen at random: Last January it and Manulife launched a 15-year regional distribution agreement covering China, Singapore, Hong Kong and Indonesia, whereby “Manulife will be the key provider of bancassurance solutions to DBS customers in these four markets.”
Of course the Canadian market hasn’t been forgotten. In March Manulife announced a $300 million offering of five-year rate reset preferred shares. Demand was so strong for the securities that the issue size was bumped to $400 million before closing out at $425 million. Investors piled in, in part, because of the 497 basis point spread above comparable five-year Canada bonds.