The Export Import Bank of China (Chexim) made a rare entry to the US dollar market on Friday night with a reduced $750 million 10-year deal, priced one day later than expected. The A2/BBB+ rated issue was led by Citigroup, Deutsche Bank, Goldman Sachs (global co-ordinator) and HSBC.
Pricing came at 98.921% on a coupon of 5.25% to yield 5.391% or 93bp over Treasuries and 44bp over Libor. This was about 3bp tighter than the 96bp marketed range, but to achieve it Chexim had to cut the issue size from $1 billion.
Despite its huge rarity value, the deal appeared to be a tricky one to execute.
Over the past few weeks, investors have had a considerable amount of sovereign and quasi-sovereign paper to digest, including a $1.25 billion deal from Hong Kong and a $1 billion deal from the Korea Development Bank. Accounts are also aware of further China deals in the immediate pipeline, with a $1 billion deal from the China Development Bank already mandated for September and a China sovereign benchmark likely follow shortly after.
On top of this, the Asian capital markets appear to have shut down unusually early this summer, with investors beset by apathy after a succession of poorly performing deals.
As a result, the deal had momentum, but was never going to be the blow out success some might have been hoping for, garnering an order book of $1.65 billion. However, Chexim was aware that US interest rates are likely to be increased in August and wanted to access a market window while 10-year Treasury yields are still below 4.5%. At the time of pricing, yields were down at 4.46% compared to a recent two months high of 4.75% to 4.80%.
Chexim was also very price conscious and ended up coming at a roughly 8bp premium to the sovereign. The PRC has a 4.75% October 2013 bond that was trading at roughly 75bp bid at the time of pricing on Friday in New York. The curve is worth about 5bp and the leads also factored in a 5bp new issue premium, which all issuers now face in a more testing market environment.
This kind of premium is roughly in line with the Korean policy banks and their sovereign. In the cash bond market there is a huge differential between the two, with the Republic's June 2013 bond quoted on Friday at 70bp over Treasuries and KDB's September 2013 bond at 115bp over.
However, bankers say the sovereign's deal is the most technically tight deal of any Asian benchmark because it has so many derivatives attached to it. Instead, most look to the CDO market for better guidance. Here KDB is said to trade about 5bp to 10bp wide of the sovereign.
Unsurprisingly, Chexim's deal had a heavy Asian tilt, with 66% of bonds placed into the region. Of this amount, 31% went to China, 23% to Hong Kong and 15% to Singapore. The remaining 34% was split between the US on 27% and Europe 7%.
Over 100 investors participated of whom 60% were banks, 35% were funds and 5% retail.
Chexim has the same rating at the PRC, although it is on stable outlook from Standard & Poor's, whereas the sovereign is on positive outlook. In its rating outlook, Moody's noted that, "the legal regime underlying the bank is weak. Efforts have been initiated to codify its role within China's financial system, as with policy banks in various other countries, although it may be some time before such efforts are concluded."
