Bank of China: a ‘covered bond’ in name only

It could have been a game-changer. Instead, Bank of China settled for a Frankenstein — a deal that was not quite a covered bond, but not quite a conventional bond either.

Bank of China raised $500 million from a green covered bond last week, becoming the first Chinese issuer to ever use the covered bond format for funding.

In theory, the deal should open up a potentially lucrative source of business for banks and a markedly different asset class for investors. In practice, the chances are it won’t.

The deal was by no means a failure. It generated $900 million of demand. It allowed the issuer to price inside its senior unsecured secondary curve. It has traded well in the secondary market, being quoted around reoffer on Monday.

The problem is Bank of China’s deal...

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