China MoF defies market turmoil in latest bond offering

The US dollar three-tranche bond offering still managed to attract an order book totaling about US$13.2 billion from 334 accounts despite the global market turbulence

"If there is anyone who can do it, it is China." That's how a senior banker described the ability of China's Ministry of Finance (MoF), which defied the market turmoil last week when it returned to the US dollar bond market to price on October 11 a three-tranche offering totaling US$3 billion. In doing so, the sovereign managed to push out its credit curve to 30 years.

The Reg S only deal comprised of a five-year tranche amounting to US$1.5 billion, which was priced at 99.634% with a coupon of 3.25% to offer a yield at 3.330%. This represented a spread of 30pb over the US treasuries, or at the tight end of the final price guidance of between 30bp and 35bp.

The second tranche was for 10 years amounting to US$1 billion, which was priced at 98.918% with a coupon of 3.50% to offer a yield of 3.630%. This was equivalent to a spread of 45bp over the treasuries, which was also at the low end of the final price guidance of between 45bp and 50bp.

The third tranche was for 30 years amounting to US$500 million, which was priced at 99.050% with a coupon of 4% to offer a yield of 4.055%. This represented a spread of 70bp over the treasuries, which was likewise at the tight end of the final price guidance of between 70bp and 75bp.

The final pricing in each of the tranche also represented a 20bp tightening from their initial price guidance of 50bp area for five years, 65bp area for 10 years and 90bp area for 30 years.

At these levels, the sovereign pays hardly any new issue premium, the banker points out, as the bonds were priced close to where the outstanding paper was trading. The latest bonds basically traded flat in the secondary market on October 12. "It shows it was a right call to start with a wider initial price guidance, and both the issuer and investors are happy," the banker adds.

Amid the volatile market environment, the transaction was not able to match the level of demand amounting to US$21 billion that the MoF garnered in October last year when it printed a US$2 billion trade. But it still managed to attract an order book totaling about US$13.2 billion from 334 accounts despite the global market turbulence during the book building process.

The five-year bonds attracted the biggest demand at US$6.3 billion from 115 accounts with 77% of the paper sold in Asia, 21% in Europe and 2% in offshore US. By type of investors, banks took 49%, public sector 25%, fund managers 24%, and insurance companies, pension funds and private banks 2%.

The 10-year tranche generated an order book of US$4.9 billion from 108 accounts with 67% of the bonds allocated in Asia, 29% in Europe and 4% in offshore US. Banks were also the biggest buyers as they accounted for 48%, followed by fund managers with 41%, public sector 7%, insurance companies and pension funds 3% and private banks 1%.

The 30-year bonds attracted a total demand of US$2 billion with the participation of 111 accounts. Asia again took the biggest slice of the bonds with 59%, Europe 35% and offshore US 6%. Fund managers drove this offering as they bought 65% of the paper, banks 25%, insurance companies and pension funds 6%, and private banks and other investors 4%.

The net proceeds from the bonds will be used for general governmental purposes. Bank of China, Bank of Communications, China Construction Bank, China International Capital Corporation, Credit Agricole CIB, CTBC Bank, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Mizuho Securities and Standard Chartered acted as the joint bookrunners and lead managers for the transaction.