Beijing Infrastructure Investment raised $1 billion from a dual-tranche bond offering on Thursday to help fund the development of Beijing’s metro system.
The metro construction firm’s latest Reg S bond — its second international debt offering this year as China ramps up its infrastructure spend — comprises a $700 million three-year note and $300 million five-year note. The two tranches priced at US Treasuries plus 170 basis points and 167.5bp, respectively, compared with initial price guidance set at Treasuries plus 190bp and 195bp, according to a term sheet seen by FinanceAsia.
“This bond is clearly a play on the Beijing subway’s strategic importance and thus the likelihood of continued Beijing government support,” one credit analyst who declined to be named said. “And in that regard, we do take some comfort from the fact that Beijing Infrastructure’s leverage is so high, because of its policy role.”
In an effort to boost its slowing economy, China has approved Rmb693.3 billion-worth ($113.24 billion) of infrastructure projects in recent weeks, according to the official Xinhua News Agency.
The new projects will cover airports and railways as the world’s second-largest economy seeks to counter a decline in real-estate investment. Overall, five airports and 16 railways will be built in an attempt to revive sluggish property investment.
The last issuer to raise an infrastructure-backed bond was China National Travel Service, which raised a $1 billion dual-tranche offering in October.
Investors rest assured
Standard & Poor’s in a November note said its A- rating of Beijing Infrastructure's newest bonds, which is one notch lower than the long-term corporate credit rating of the parent, is driven by the credit worthiness of the Beijing municipal government.
It also reflects the rating agency’s expectation of an “almost certain” likelihood of timely and sufficient government support in the case of financial distress.
In addition, the bond is guaranteed by Beijing Infrastructure Investment (HK) and supported by various forms of credit enhancements from the parent company, which is wholly-owned by Beijing’s municipal government.
These credit enhancements include a keepwell deed, liquidity support deed and an equity interest purchase undertaking, in which any gaps in bond repayment amounts could theoretically be met by the onshore parent company agreeing to buy a stake in subsidiaries held by the offshore issuer. The equity proceeds could then be used by the offshore issuer to pay back bondholders.
Comparables
Credit analysts say that Beijing Infrastructure’s bond looks attractive compared to its existing curve and closest peers, especially for a sector that’s currently in demand.
The nearest comparables for the company’s three-year offering are its existing March 2019 bond and Zhejiang Energy’s September 2017 notes, which traded at a G-spread -- defined as the spread differential between its yield and the interpolated government bond rate -- of 155bp and 145bp, respectively, prior to announcement, a source familiar with the matter said.
For the five-year bond, the nearest comparables were Beijing Enterprise Investment’s outstanding May 2021 notes, which traded at a G-spread of 155bp.
The three-year tranche obtained a $3.5 billion orderbook from over 200 accounts, slightly more than half of which went to fund managers. Financial institutions subscribed to 29%, followed by private banks 8%, and insurers and sovereigns 8%.
Whereas for the 10-year deal received a $3.2 billion orderbook from over 200 accounts. Fund managers purchased 53% of the notes, followed by banks 19%, private banks 16% and insurers 12%.
Beijing Infrastructure Investment was established in 1981 as Beijing Municipal Subway for the purpose of financing, constructing and operating Beijing’s subway system. The firm currently operates 14 subway lines with another 11 lines under construction and two more planned.
The company posted revenue of Rmb2.2 billion ($358 million) in the first half of 2014, an 8.2% decline on the year-ago period. Net debt was estimated at 69 times earnings before interest, taxation, depreciation and amortisation.
Royal Bank of Scotland and HSBC are the joint global coordinators and bookrunners of Beijing Infrastructure’s transaction, which is issued under the company’s existing $2 billion medium-term notes programme. Other bookrunners include JP Morgan, ICBC Asia and Bank of China.
