Two borrowers from opposite ends of the Greater China credit spectrum accessed the international bond markets on Wednesday, in a first test of investor sentiment since the US Federal Reserve lifted interest rates in December.
Issues for Hong Kong stalwart Swire Properties and debut borrower Jiangsu NewHeadLine Development (Jiangsu NHL) both caught a positive market window, benefiting from a re-bound in Chinese equities markets over the course of the trading day.
However, the sheer scale of demand for Jiangsu NHL's high-yield deal is likely to have cheered bankers and issuers alike. Books came close to $2 billion towards the end of the bookbuilding process according to one source close to the transaction, before easing back to $1.4 billion according to another.
This led the local government financing vehicle (LGFV) to aggressively tighten indicative pricing on its $200 million three-year Reg S issue from initial guidance around the 6.625% level to a final yield of 6.2%. This was through fair value according to one brokerage, which valued the bond at 6.35%.
“The credit displays typical LGFV features,” it wrote in a note.
“The government’s support track record is good and future commitment looks solid (clear injection pledges)," it added. "In terms of standalone metrics, Jiangsu NHL is not far off from its weak LGFV counterparts like GZHCIG/BINHCO/QDCCIZ, which also have small asset sizes (Rmb10 billion to Rmb30 billion range), revenues (Rmb1 billion to Rmb2 billion range), tight liquidity (interest coverage below one times) and high leverage (above 20 times).”
Issuance vehicle Zhiyuan Group BV was rated BB+/BB, one notch below its parent’s BB+ rating, by Standard & Poor’s as a result of its keepwell and liquidity support structure. The guarantor is in turn wholly owned by the Lianyungang Municipal Government and would warrant a B rating on a stand-alone basis according to the rating agency.
Distribution statistics show that 111 accounts participated with a split 72% fund managers, 22% banks and others. By geography, 96% went to Asia and 4% to Europe.
One of two big attractions for investors was the yield kicker over investment grade rated LGFV comparables.
These include Baa3/BBB- rated Tianjin Binhai New Construction’s (BINHIN) 3.25% 2018 deal, which was trading Wednesday on a yield of 3.93%.
Similarly, BBB+/BBB- rated Qingdao City Construction Investment’s (QDCCIZ) 4.75% 2020 bond was trading Wednesday at 4.21%.
In turn, LGFV credits are trading about 50bp over similarly rated non-LGFV state-owned credits.
"Overseas investors liked the yield because bonds offering more than 6% have virtually disappeared in the market," said one investor who attended the roadshow presentation and asked not to be named.
Bankers concurred. “The final size of the order book was beyond our expectations,” one remarked.
A second added that institutions rather than private banking demand drove the transaction, leading to strong offshore participation.
The investor also said the deal appealed because of its rarity value. Bankers expect Asian G3 bond issuance volume to drop slightly this year in part due to an absence of large offerings from China where issuers are reluctant to borrow as the currency drops against the US dollar.
Many Chinese issuers are also now raising funds in the domestic market where borrowing costs are much lower.
As one brokerage highlighted, the technicals underlying the transaction are very strong for investors with RQDII quotas. “Note that an onshore CNY Jiangsu NHL three-year bond is yielding 3.8%,” it wrote. “After the cross currency swap this implies the new offshore bond is 400bp cheaper.”
Other companies about to jump on the fundraising bandwagon in China’s domestic market include Hong Kong-listed property firm Joy City Property. It plans to issue about Rmb7.4 billion ($1.13 billion) according to CFO Xu Hanping. She told FinanceAsia the company has received regulatory approval and timing will depend on market conditions.
Shanghai-headquartered Shimao is also looking to raise Rmb 20 billion.
Global co-ordinator for Jiangsu NHL’s deal was Guotai Junan International, with CCB International and DBS as joint bookrunners.
Swire builds out its investor base
Hong Kong-listed Swire Properties also returned to the international bond markets for the first time since September on Wednesday with a $500 million 10-year Reg S deal.
Final pricing for the A2/A- rated offering was fixed at 99.668% on a coupon of 3.625% to yield 3.665% or 147.5bp over Treasuries. Bankers initially went out with price guidance at 165bp over, before tightening it to 2.5bp either side of 150bp over.
The deal attracted a reasonable order book that topped $2 billion at its peak and closed at the $1.8 billion level. Bankers said investors liked the credit because of its safe haven status at a time of volatile markets.
"This was a very successful outcome,” one banker concluded. “Swire paid a 5bp new issue premium compared to the 10bp US companies are paying overnight."
The closest comparable was the group’s recent 3.875% September 2025 bond, which was trading on a G-Spread of 141bp on Wednesday.
A total of 131 accounts participated according to syndicate distribution statistics of which 95% came from Asia and 5% EMEA. By investor type fund managers took 52%, banks 36%, insurers 8% and private banks 4%.
Founded in 1972, Swire Properties is one of the biggest commercial property developers in Hong Kong and owns upscale shopping malls Pacific Place and Taikoo Place.
HSBC and JP Morgan were the joint bookrunners.
The article has been amended since first publication to add final distribution statistics.
