One of China’s policy banks, China Development Bank (CDB), on January 17 priced a dual currency, multi-tranche bond offering equivalent to over US$4 billion, in a deal to help build out a more complete yield curve beneficial to all Chinese and SSA (supranational/sovereign/agency/provincial) issuers.

The US dollar issue comprised of a five-year bond amounting to US$1 billion, which was priced at 99.577% with a coupon of 2.625%, to offer a yield of 2.716%. This represented a spread of 87.5bp over the US treasuries. The second tranche was a 10-year note for US$500 million, which was priced at 98.995% with a coupon of 3.375%, to offer a yield of 3.495%. This was equivalent to a spread of 115bp over treasuries.

The final tranche was a 20-year bond amounting to US$500 million, which was priced at 100% with a similar coupon and re-offer yield of 4%, representing a spread of 103.1bp over treasuries. This was the first 20-year tenor printed by either CDB or the other Chinese policy bank, Export-Import Bank of China (Chexim), which in the past have both issued up to 10 years only in the US dollar bond market.

The transaction marked the first Chinese issuance in the euro bond market in 2017 as CDB also priced a dual-tranche euro offering totaling 1.9 billion euros (US$2.02 billion). The first tranche was for three years amounting to 1.5 billion euros, which was priced at 99.672% with a coupon of 0.125% to offer a spread of 35bp over mid-swap. This was in line with the final price guidance of 35bp (+/- 2bp), and 10bp inside the initial guidance of 45bp area. This represented the largest single euro tranche offered at a time by a Chinese policy bank.

The other tranche was for seven years amounting to 400 million euros, which was priced at 98.698%, with a coupon of 0.875%, to offer a spread of 75bp over mid-swap. This was at the tight end of the final price guidance of between 75bp and 85bp, and 15bp inside of the initial guidance of the 90bp area.

Like in the case of the US dollar issue, the seven-year tranche represented an extension of the yield curve for CDB in the euro bond market, since the bank – and including Chexim – has previously only issued up to five years in euros.

In executing the transaction, CDB has been advised to file for an early January issuance in view of the risk events later in the year. As soon as the regulators provided the necessary approval, the bank announced plans for a dual currency issuance at Asia open on January 16, ahead of the US presidential inauguration.

Given CDB’s intention to extend duration at minimal risks, the announcement was anchored on the core tranches of three years for euro, and five years/ten years for US dollar, while stating the possibility of add-ons for a seven-year euro, and a 20-year US dollar based on reverse enquiry.

The deal generated constructive feedback following the announcement, with the euro tranche attracting strong interest from investors in the three-year tranche and few sizeable indications of interest in the seven years, which helped crystallize the expected deal size and price.

The combined interests enabled CDB to move ahead with all tranches on January 17 at Asia open. For the euro offering, the initial price thoughts were given at 45bp area over mid-swap for three years, and 90bp area for seven years on the back of significant anchor interests communicated to the market.

The starting point represented about 10bp to 15bp of initial concession, to fair valued based on CDB’s outstanding 2019 euro bonds, and Chexim’s latest three-year/five-year curve. The combined euro book grew throughout the Asia day and European morning, and were in excess of 3.1 billion euros (including joint lead interest) by the time of the final guidance at 11am, London time, which was skewed, as expected, on the three years.

The final combined euro book closed in excess of 3.25 billion euros, and supported by a large number of high quality accounts, including central banks and official institutions, CDB decided to print a larger size across both euro tranches than previously contemplated, arriving at the final pricing of 35bp over mid-swap for three years, and 75bp over mid-swap for seven years.

Despite the size of the new euro deal, the final pricing was flat to fair value, helped by the robust demand and book building strategy.

Proceeds from both the US dollar and euro tranches will be used for working capital and general corporate purposes. Acting as joint bookrunners in the US dollar five-year and ten-year tranches were China Construction Bank (Asia), Bank of China (Hong Kong), BOCOM (Hong Kong), BNP Paribas, Deutsche Bank, HSBC, KGI Asia, MUFG, Standard Chartered, and UBS. The joint bookrunners for the 20-year tranche were BoC International, BNP Paribas, Deutsche Bank, HSBC, ING, and KGI Asia.

In the euro offering, the joint bookrunners were China Construction Bank (Europe), ICBC, BOC International, Barclays, BNP Paribas, Commerzbank, Deutsche Bank, HSBC, ING, and Mizuho Securities.