Beijing Infrastructure builds out euro curve

Chinese subway developer returns to euro markets but needs a fairly sizeable new issue premium to clear deal in soft conditions.
Investors in no rush to get back to work
Investors in no rush to get back to work

Beijing Infrastructure Investment (BII) returned to the euro markets for the second time this year with a €600 million ($650 million) deal on Monday.

Given its sizeable capex programme to develop Beijing's subway system, the A+/A1/A+ rated group was keen to find an early window to execute its deal even if it meant paying a larger-than-normal new issue premium to clear the transaction in febrile markets.

After setting out with guidance of 145bp over mid-swaps for a benchmark four-year offering, the group tightened final guidance to 135bp over. Pricing of the July 2019 bond was fixed at 99.412 on a coupon of 1.5% to yield 1.635%.

The A/A2 rated deal was issued in the name of Eastern Creation II Investment Holdings and incorporates a keepwell and liquidity support deed from BII.

It attracted an order book of €1.1 billion with roughly 65 accounts and a split, which saw between two thirds and three quarters of the paper placed in Europe and the rest in Asia. 

Earlier this year, BII made its euro market debut with an €500 million March 2018 transaction, which was priced at 99.768 on a coupon of 1% to yield 95bp over mid-swaps. This was trading on Monday at 93bp over, which means BII has paid 42bp for a 15-month extension to its curve. 

Faced with a roster of competing euro deals on the same day, bankers said BII needed to cede a new issue premium of about 15bp to 20bp. "Investors have been pushing for new issue premiums in the range of 20bp to 40bp for recent euro-denominated deals," one banker commented.

"The market has improved since the Greek bailout package was approved but it is still very jittery," he added. "You only need to look at how the Tianjin Binhai issue performed late last week to see how investors can turn at the slightest hint of a negative headline even if the story told them nothing they didn't know already."

Tianjin Binhai's $800 million Baa1/BBB+/A- rated deal had attracted a fairly healthy order book of $1.5 billion for a three-year tranche and $1.9 billion for a five-year tranche. Yet both tranches immediately opened down about half a point on Thursday after a media report flagged the region's elevated debt levels.  

Analysts report that many fund managers have built up large cash positions and seem quite happy to remain sitting on the sidelines even though markets have started to warm up. The Asia ex-Japan iTraxx Index has tightened to a mid-price of 104.5 from its recent high of 121.3 on July 8.

Bankers also say that the increasing supply of Chinese paper denominated in euros is starting to weigh slightly on demand. Deals for entities like BII, which incorporate keepwell deeds, are also notably less liquid in the secondary market than for pure quasi-sovereign credits in their own name. 

On the minus side this is said to be putting off some accounts. However, on the plus side it means that trading levels remained fairly stable during the recent bout of volatility.

As a result of the new deal, BII has now filled a gap in its yield curve and complemented its existing euro-denominated paper maturing in 2018 with its outstanding dollar paper, which matures in 2017 and 2020. 

Bankers said the group was also pleased with the way it has been able to expand its investor base by tapping euros. 

On a stand-alone basis, Moody's rates BII at the Baa2 level but has assigned a rating four notches higher because of the strong support from the Beijing municipal government, which approves the group's funding programme and governance. 

BII is Beijing's biggest subway developer operating 15 of its existing 18 lines.

On Friday the city's mayor, Wang Anshun, said the government had decided to begin construction on six new lines this year and increase the track length by a further 27 km. This extra capacity is needed for a city that is projected to house 130 million people by 2030 (six times the number that currently live in New York).

Joint global co-ordinators for BII's new deal are BOCI and Goldman Sachs. Joint bookrunners are BNP Paribas, DBS, HSBC and JP Morgan.


The Greek drama has kept a large number of issuers on the sidelines over the past few weeks but a number began roadshows on Monday in order to get their deals in ahead of the summer lull. 

They include Bocom with its $2.45 billion additional Tier 1 deal, China Minmetals, Korea National Oil, HNA Capital and Greentown China, which launched a consent and solicitation offering ahead of a new deal via BOCI, Credit Suisse, HSBC and UBS. 

Already on the road are Thai Oil with its new $1 billion GMTN programme and CCB Financial Leasing with a proposed dollar deal under the lead management of CCB International, HSBC, Morgan Stanley and Standard Chartered.

On Tuesday, roadshows are also scheduled for China Oilfield Services via BOCI, Goldman Sachs and HSBC.

Underwriters for Bocom's deal are Bocom, Deutsche Bank, HSBC, Citic CLSA, CCB International, Goldman Sachs, Citigroup and JP Morgan. China Minmetals, meanwhile, has mandated Deutsche Bank, HSBC, ICBC and JP Morgan. 

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