Pan-Asian insurer AIA GROUP added a new financing instrument to its arsenal with its first perpetual capital bond offering. It priced a US$750m perpetual non-call five subordinated bond at par to yield 2.7%, inside initial guidance of the 3.125% area. The notes will rank alongside AIA Group's 3.2% 2040 Tier 2 bonds issued last year, and as with the 2040s there is no principal loss absorption. One difference is that coupons on the perp can be deferred, although interest is cumulative and compounding, and halting coupon payments would also require AIA to stop paying its equity dividend. Unlike the 2040s, the perps will earn equity credit with Moody's and Fitch. The regulatory capital value of the 2040s will fall away as the maturity date approaches, but that will not happen with the undated securities. If the perps are not called, the coupon will reset to the initial spread of 175.8bp over five-year Treasuries.
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