Asia’s dollar bond market got off to a roaring start last week, and the dim sum market is now following suit. China Development Bank (CDB) is in the market this week with a multi-tranche offshore renminbi bond to raise up to Rmb6 billion ($949 million), according to market sources.
The deal will establish a new benchmark, offering investors a 15-year tenor through a publicly marketed deal for the first time. It will be sold to institutional investors through two channels: an auction and a bookbuilding process. The three- and five-year tranches will be sold by auction and are expected to raise a combined Rmb3 billion to Rmb4 billion ($475 million to $633 million).
The Chinese policy bank also plans to issue long-dated bonds — with market sources saying that it will sell 10- and 15-year bonds to raise a combined Rmb1 billion to Rmb2 billion ($158 million to $316 million) — that will be sold through a bookbuilding process.
“China Development Bank wants to diversify its investor base as well as support the offshore renminbi market,” said Jon Pratt, head of Asia debt capital markets at Barclays Capital. “Most of the bonds issued in the offshore renminbi market have short maturities of three to five years. The only benchmark for the long bonds would be the Ministry of Finance’s 10-year bonds.”
A roadshow will be held in Hong Kong on Wednesday and the bookbuilding will take place on Thursday. Barclays Bank and Citigroup are joint global coordinators and bookrunners. HSBC, Deutsche Bank, Standard Chartered and Royal Bank of Scotland are also joint bookrunners. The auction will be held on January 13, with Bank of China acting as the issuing and lodging agent through its Hong Kong branch.
Many market participants are keen to see how investors respond to the longer-dated paper — so far, dim sum bonds have typically featured short maturities, designed to take advantage of short-term renminbi appreciation. CDB’s bond will test the market’s appetite for longer maturities.
The proceeds will be kept offshore and be used to support its Hong Kong lending business. CDB is not expected to swap the proceeds. The bonds will be issued through the onshore entity, which investors prefer because it gives them equal seniority with existing onshore creditors. In the past, mainland banks have usually issued dim sum bonds through their Hong Kong branches.
The deal got underway last year, but was delayed due to market conditions, and also because there was uncertainty as to which banks would receive approval to issue first. “There was market volatility and it wasn’t clear which banks would go first. All of them wanted to be the first to go,” said one market source.
There is speculation that the government could award a new quota of Rmb50 billion for mainland entities in 2012, according to one debt banker. Meanwhile, the remainder of last year’s quota, which totals Rmb46.4 billion, is expected to be carried forward to this year and bankers speculate that the quota available this year could be close to Rmb100 billion. Last year, only one mainland company, Baosteel, tapped the dim sum market directly, raising Rmb3.6 billion.
CDB is rated Aa3/ AA-/ A+ by Moody’s, Standard & Poor’s and Fitch, the same as China’s sovereign credit rating. It has issued directly in the dim sum market before but this was said be through smaller issues offered to retail investors.
Elsewhere, Agricultural Development Bank of China held roadshows for its own potential dim sum bond in Singapore on Friday and in Hong Kong on Monday. Bank of China and Standard Chartered are joint global coordinators and bookrunners.
Away from the dim sum market, Shui On Land (Singapore), which is wholly owned by Shui On Land, will start fixed-income investor roadshows today and a potential Singapore dollar bond could follow, subject to market conditions. Standard Chartered is a global coordinator and bookrunner. BNP Paribas, Deutsche Bank and UBS are joint bookrunners.
