Investment grade rated Chongqing Nan’an Urban Construction & Development sold $800 million in three-year and five-year bonds on Tuesday, extending the recent diffusion of Chinese local authority borrowers into the dollar markets as rising default rates push up domestic borrowing costs.
Local-government financing vehicles such as Chongqing Nan’an have been expressly set up by Chinese local governments to help finance infrastructure development.
In the three months to end June, LGFVs sold a total of $2.7 billion in US dollar-denominated bonds, dwarfing the $200 million raised in the first quarter, according to data provider Dealogic.
By contrast, they sold Rmb418.4 billion-worth ($62.5 billion) of domestic bonds over the same period, down 35% on the Rmb650.2 billion raised in the first three months of the year, Wind data shows.
According to data provider Wind also, Chinese companies pulled more than double the amount of planned bond issues in the first six months of this year than they did a year earlier, as defaults soared more than sevenfold to more than Rmb23 billion.
Despite challenging conditions, bankers familiar with the matter said BBB+/BBB+ rated Chongqing Nan'an received a peak order book of $3.8 billion thanks to a week-long marketing campaign meeting investors in Hong Kong, Singapore, and London.
"The book consists of a mix of banks and strategic investors," a syndicate banker told FinanceAsia.
Pricing
Initial guidance for a $300 million July 2019 issue and $500 million July 2021 issue was set at 270bp over Treasuries and 300bp over, respectively, before being tightened to 240bp over and 5bp each side of 275bp.
Final pricing on the shorter-dated note was fixed at 99.063% on a coupon of 2.875% to yield 3.205%, or 240bp over Treasuries, while the longer-dated bond was priced at 99.264% with a coupon of 3.625% to yield 3.788%, or 270bp over Treasuries, according to a term sheet seen by FinanceAsia.
The closest comparables are Baa1/BBB+-rated Anhui Transportation's 2.875% June 2018 bond and Baa1/BBB+-rated Tianjin Infrastructure Construction and Investment's 2.75% June 2019 bond. These traded on G-spreads of 206bp and 205bp, respectively, on Tuesday but incorporate keepwell deed and liquidity support agreements unlike Chonqing's deal, which is a direct obligation.
Another comparable is Tianjin Rail Transit Group's 2.875% May 2021 bond, which was trading at 208bp over five-year Treasuries and a G-spread of 210bp on Tuesday.
According to syndicate bankers, fair value for the three-year note stands around 245bp over Treasuries, while the five-year bond should be at around 260bp over.
One of them said Monday's $300 million debut sale by Shenzhen Expressway had boosted investor sentiment after the five-year deal tightened by 20bp during secondary market trading.
The global coordinator of the Chongqing Nan'an transaction was CICC Hong Kong Securities, while Bank of China, ICBC Asia, OCBC Bank, Shanghai Pudong Development Bank Hong Kong branch, Standard Chartered, and Wing Lung were joint bookrunners.
