China Development Bank has priced a Rmb4.5 billion three-tranche Reg S senior unsecured bond offering, setting a benchmark for upcoming CNH notes.
The deal comprised Rmb1.9 billion 2-year notes at 3-month Hibor plus 20bps, Rmb1.7 billion 5-year notes at 3.6% and Rmb900 million tranche at 4.5%.
Investors were enthusiastic, leading the bank to increase the size by 50% from the original Rmb3 billion. The coupons of the 2-year and 5-year tranches were both tightened by 5bps from initial 3-month Hibor plus 25bps and 3.65%, given the hefty demand. The upsized book was finally 1.22 times covered.
The issue from CDB, the country’s policy bank, rated Aa3 by Moody’s and AA- by S&P, is significant for the offshore Rmb market because it represented a first in several areas.
CDB’s issue is the first public floating rate notes based on CNH Hibor in the offshore market from a Chinese issuer, which will set a benchmark for future floating rate issuance. The only issuer that has used CNH Hibor, instead of widely used Shibor, is Germany’s L-Bank, which issued Rmb250 million on November 1.
It is also the first three-tranche offshore deal from a non-government entity – a move that enriches product types available to issuers and investors. Also, it is the first Chinese financial institution to tap the offshore market this year, showing the support from Beijing to further develop Hong Kong into an offshore Rmb hub.
“The issue is backed by regulators from both the mainland and Hong Kong,” said Zhang Xuguang, deputy president of CDB.
The signal from China was well received by investors across the region. The Macau monetary authority was the largest single institutional investor, and various central banks and sovereign wealth funds in the Middle East and Southeast Asia bought a substantial portion of the notes.
The deal comes to the market amid broad credit market weakness, underscoring the resilience of the offshore Rmb market. As of end-October this year, the Rmb bonds in Hong Kong were decreased 20.4% and 28% in terms of size and number of issuance, compared to the same period last year, according to Dealogic data.
However, markets believe the notes will pave the way for upcoming Rmb bonds, including the Rmb10 billion government bonds issued by Ministry of Finance scheduled for November 21.
“It’s like a test of investor interest for Dim Sum bonds,” said a source on the CDB transaction.
Bank of China (Hong Kong), Barclays, HSBC and Standard Chartered were joint leads. ABC International, Bank of Communication Hong Kong, CCB International, ICBC (Asia) and ICBC International were other joint bookrunners on the deal.
