Two Chinese finance companies launched dollar bonds on Tuesday, hitting a market where the recent credit rally appears to be stabilising ahead of interest rate decisions by the US Federal Reserve and Bank of Japan later this week.
However, while secondary markets are showing signs of profit taking, primary market demand remains strong, with China Development Bank Capital’s capped $500 million deal attracting a peak order book of $5 billion.
A second $300 million deal for China Minsheng Investment garnered a more subdued order book of $1.4 billion thanks to its unrated status.
While investment grade spreads widened about 2bp on Tuesday, syndicate bankers argued that the underlying momentum is not slackening off and continues to be driven by large inflows into emerging market funds and the ongoing search for yield.
They also pointed out that onshore Chinese investors have been massing offshore once more as a result of rising defaults on the Mainland and a decline in the renminbi.
CDB capitalises on strong demand
The domestic reception to CDB Capital’s five-year Reg S deal appears to amply demonstrate the trend.
Ahead of pricing, non-syndicate brokers had argued for a big pick up over pure CDB debt on the basis of weaker credit metrics: the guarantor is the overseas financing platform CDB International and the keepwell provider is CDB Capital.
However, this did not appear to cut much slack with Chinese investors who appeared to view the credit of the wholly owned investment arm as souped-up CDB debt with added benefit of the same AA-/A+ rating as the parent (from Standard & Poor’s and Fitch).
As one syndicate banker commented, "There’s a wall of liquidity in the market right now coming from onshore investors including insurance companies and banks’ treasury departments.”
The banker added, "The new deal has priced inside the existing curve thanks to the strong order book.”
Initial price guidance was pitched at 145bp over Treasuries before being tightened to 5bp either side of 120bp.
Final pricing of the August 2021 transaction in the name of CDB Treasure 1 was fixed at 99.751% on a coupon of 2.25% to yield 2.303%, or 115bp over Treasuries, according to a term sheet seen by FinanceAsia.
The final order book stood at $3.75 billion with participation from 200 accounts. By geography it split 93% Asia and 7% Eruope. By investor type, 40% went to fund managers, 34% to banks, 18% to insurance funds and 8% to private banks.
The closest comparables are CDB’s existing 2.125% January 2021 bond and its 3.25% December 2022 bond. These were respectively trading on G-spreads of 91bp and 116bp on Tuesday.
The latter of the two deals was issued in the name of Amber Circle Funding.
A second comparable is A+ rated CDB Leasing’s December 2019 deal, which was trading on a G-spread of 178bp on Tuesday.
Syndicate and non-syndicate brokers placed fair value in the 130bp to 135bp range, mid-way between pure CDB debt and CDB leasing debt.
However, both concluded that CDB Capital would be able to get away with pricing around the 115bp level because of market liquidity and particularly the strong demand for shorter-dated paper.
CDB Capital, which was established in 2009, has invested more than Rmb150 billion ($22.5 billion) in 400 projects. Besides overseas investment, the company participates in pre-IPO and M&A investments, fund management and projects, which help speed up urbanization.
Joint global coordinators were BOC International, Barclays, UBS, Bocom Hong Kong branch, while Agricultural Bank of China Hong Kong Branch, ABC International, Bank of China Hong Kong, Bocom International, China Construction Bank Asia, CCB International, Citi, ICBC Asia, ICBC International, Morgan Stanley and Natixis were joint bookrunners.
China Minsheng graduates from SBLC status
The second deal of the day came from private equity firm China Minsheng Investment and provides an interesting example of a company, which has been able to graduate from SBLC (standby letter of credit) status within the space of a year.
Initial guidance for the Reg S three-year deal was pitched at 4.125% before being tightened to a range of 3.9% to 4%.
Final terms for the August 2019 deal were settled at 99.719% on a coupon of 3.8% to yield 3.9%, according to a term sheet seen by FinanceAsia. Bankers said this equated to 304bp over Treasuries.
The issuance vehicle was Boom Up Investment with a guarantee from CM International Capital.
"The book consists of a good mix of bank and private banking accounts," one syndicate banker commented. Final demand stood at $1.25 billion from 62 accounts with a split of 98% Asia and 2% Europe.
By investor type banks took 61%, fund managers 26%, private banks 13%.
Syndicate bankers benchmarked the deal against outstanding BBB rated bonds by Chinese local government financing vehicles.
These include Xihui Haiwai International's 3.25% June 2019 bond and Chongqing Nan'an Urban Construction & Development's 2.875% July 2019 bond. These were respectively trading on G-spreads of 223bp and 225bp.
Another comparable is privately held Minsheng Financial Leasing's unrated 3.2% July 2021 bond. This was trading on a mid-yield of 3.288% on Tuesday, which means Minsheng Investment has offered a 61bp pick up.
Boom Up Investment also has an existing $300 million 3.25% 2020 deal, which was issued last July, with credit enhancement from Agricultural Bank of China, giving it an A1 rating. On Tuesday it was trading on a mid-yield around the 2.62% level.
China Minsheng Investment was founded in 2014 and is run by Dong Wenbiao, the well known and powerful former president of China Minsheng Bank.
Joint global coordinators for the new bond deal were AMTD, which is sole arranger of the group’s $1 billion MTN programme, HSBC, Huarong Financial and UBS, while ABC International, CM Securities, Credit Suisse, GF Securities, ICBC International, Shanghai Pudong Development Bank Hong Kong branch, Bali Securities, China Merchants Securities Hong Kong, Citi, Standard Chartered Bank and Sun Hung Kai Financial were joint bookrunners.
