China Opportunity International Limited has launched its fourth repackaging transaction, giving foreign dollar-denominated investors easy access to a portfolio of nine renminbi-denominated bonds issued by four Chinese regional and local governments (RLGs). Bank of China and Standard Chartered Bank were the bookrunners.

The transaction illustrates the desire on behalf of the Chinese authorities to broaden the investor base for domestic renminbi bonds, including those issued by RLGs.

Moody's Investors Service assigned a definitive A1 (structured finance) rating to the US$632 million series 2017-1 notes, which pay a coupon of 2.05%. The notes are due in November 2018.

At closing, the issuer used the proceeds of the notes to purchase the collateral pool. To address the currency mismatch between the US dollar-denominated notes and renminbi-denominated collateral pool, the issuer entered into nine corresponding cross-currency swaps with Bank of China, Shanghai Branch. If an RLG bond defaults, only the single corresponding swap will be unwound.

Under the cross-currency swap, the issuer will immediately pass through the renminbi collections from the collateral pool to the swap provider. In return, the swap provider will pay US dollar interest and principal repayment amounts due on the notes prior to the note payment dates.

The collateral pool is comprised of nine bonds. They are issued by the Guangdong Provincial Government, the Hebei Provincial Government, the Henan Provincial Government, and the Zhejiang Provincial Government. The bonds mature between September 2018 and November 2018. These bonds were issued in 2015 and are traded in the Chinese interbank bond market. The principal amount of the collateral pool totals 4.31 billion yuan.

Neither the bonds nor the issuing RLGs are rated by Moody's. Moody's assessed the credit quality of the four provincial governments. The average credit quality of the collateral pool is A1.

The issuer, China Opportunity International Limited, is incorporated in the Cayman Islands and established a secured medium term note programme in December 2016. Under the programme, it may issue multiple series of notes up to a maximum principal amount of US$5 billion. The programme is structured to allow the issuer to issue series of segregated notes. Three unrated series of notes have been issued to date.