Jiangsu Hanrui, a BB+ rated local-government financing vehicle (LGFV), priced its $300 million debut international bond ahead of the UK vote on European Union membership on Thursday.
With investors waiting on the sidelines ahead of the UK referendum vote, the deal did not attract a sizeable order book closing at the $500 million level according to one source close to the deal.
This low level of interest contrasts with $1.4 billion order book similarly rated LGFV Jiangsu NewHeadLine attracted for its $200 million offering in January and the $1.2 billion final order book BBB+/BBB+ rated LGFV Wuxi Construction amassed at the beginning of the week.
However, one Hong Kong-based investor told FinanceAsia it was not just Brexit that impacted demand for the deal. The fund manager said offshore investors have been scaling back their LGFV exposure because they are worried about the credit fundamental and transparency of the government-backed entities.
“Financial conditions in China remain tight and a lot of LGFVs are being forced to issue in dollars,” the fund manager commented. “We think quality of borrowers is going to worsen as the economy continues to slow.”
Initial price guidance for the new Reg S deal was set at the 5.4% area before being tightened to the 5.25% area. Final pricing of the June 2019 transaction was fixed at 99.04% on a coupon of 4.9% to yield 5.25%.
Bankers said the closest comparables were double-B rated Jiangsu NewHeadLine’s 6.2% January 2019 bond and Xuzhou Economic and Technology Development Zone’s 4.5% June 2019 bond.
On Thursday, the former was trading on a mid-yield of 4.386% and the latter at 4.54%.
The new deal will be issued in the name of Hanrui Overseas Investment Co. Ltd, while Jiangsu Hanrui Investment will provide a keepwell and liquidity agreement.
Hanrui has received support from the municipal government via capital injections, subsidies and payment for infrastructure construction cost and interest expense and rebates of land development cost, according to a Fitch report.
The company plans to use proceeds from the sale for working capital and general corporate purposes.
The joint bookrunners of the transaction were Guotai Junan International and China Securities International.
The next recruit to the fundraising bonanza is Yunnan Metropolitan Construction Investment Group, a BBB+-rated LGFV. It has mandated Guotai Junan International and Citi as joint global coordinators to arrange investor meetings in Hong Kong, Singapore and London.
