Dim sum bonds for CDB and Sinotruk reflect investor favouritism

Two Chinese state-owned entities — China Development Bank and truckmaker Sinotruk — crossed the line with bond issues late last week.

CDB priced a Rmb2.5 billion ($390 million) offshore renminbi bond late Thursday night, comprising the longest-dated dim sum ever sold, a Rmb1 billion 20-year bond that priced to yield 4.3%; and a Rmb1.5 billion three-year bond, which priced to yield 2.95%. Sinotruk ended up paying a 4.5% yield for its Rmb1.8 billion two-year dim sum bond.

Observers pointed out that the difference in pricing between CDB and Sinotruk reflected that investors were clearly differentiating between credits, despite the fact that both are state-owned companies.

Sinotruk enjoys government backing, but investors demanded a higher yield because its bond was unrated and it operates in a volatile sector. Its bonds also offered investors a change-of-control put at 101.

On the other hand, CDB is a state-owned policy bank that is rated Aa3/AA-/A+, and is largely viewed as a quasi-sovereign credit. As such, it was clearly the right name to push tenors in the dim sum market. In January this year, it had similarly established a new 15-year benchmark with its Rmb1.5 billion bond, and market participants welcomed the establishment of a benchmark out to 20 years.

CDB’s three-year bonds attracted strong participation from central banks as well as non-Asian investors. Central banks were allocated 58%, banks 30%, fund managers 10% and private banks 2%. By geography, Europe, the Middle East and Africa (Emea) were allocated 60%, while Hong Kong investors were allocated 24%, Singapore 12% and other parts of Asia 4%. The book for the three-year tranche attracted in excess of Rmb6 billion.

The 20-year bond attracted a Rmb2.2 billion book. Insurers were allocated 42%, banks 34%, fund managers 12%, central banks 10% and private banks 2%. Hong Kong and Taiwanese investors were each allocated 42%, EMEA 10% and Singapore 6%.

In contrast, Sinotruk’s bonds were heavily sold to banks and Asian investors. Banks were allocated 55%, fund managers 22%, sovereigns and quasi-sovereigns 17%, and private banks 6%. By geography, Hong Kong investors were allocated 69%, China 17%, Singapore 10% and Europe and others investors 4%.

For Sinotruk, the book was about Rmb1.5 billion on Friday afternoon and it was said to be price sensitive. It continued to build, closing at Rmb2.5 billion from 46 investors. According to one source, investors would have preferred a slightly longer tenor — in the three- to five-year range — but the company was concerned about paying a higher coupon.

Bank of China and ICBC Asia were joint global coordinators for Sinotruk. Morgan Stanley and Royal Bank of Scotland were joint bookrunners.

Bank of China (Hong Kong) was the sole global coordinator and bookrunner for both CDB bonds. The Hong Kong branches of Bank of Communications, Barclays, HSBC, ICBC Asia, Standard Bank and Standard Chartered were joint bookrunners for the three-year bond. The 20-year tranche featured the same line-up of banks, except that ICBC Asia and Standard Bank were absent. This led to speculation that the two banks had secured roles by putting in orders for the three-year bonds.

Some said that Barclays’ frequent role on CDB’s trades was explained by the fact that CDB is a Barclays shareholder. (Barclays acted as a global coordinator on CDB’s Rmb1.5 billion 15-year issue which priced in January this year.)