CCB Asia prices first euro offering

China Construction Bank Asia raises a €500 million bond, the first euro-denominated offering from a Chinese bank as basis swaps improve.

China Construction Bank Asia sold a €500 million ($568 million) bond on Wednesday night, reopening the door for Asian issuers to consider the euro market as basis swaps improve.

The Reg S-only offering – the first euro-denominated bond from a Chinese financial institution – priced at mid-swaps plus 120bp, which is 15bp tighter than the initial price guidance area, according to a term sheet seen by FinanceAsia.

The improvement in the cross-currency basis swap between the dollar and the euro currency played a major role in this transaction, setting the benchmark for other similar issuers to look at the market down the road, said a source close to the deal.

“The basis swap is why you haven’t seen any material issuance from Asian borrowers in previous years,” said the source. “The costs have now come closer to a dollar comparable.”

The cross-currency basis swap has moved from 15bp one month ago to 26bp now, suggesting the savings have nearly doubled for overseas borrowers, the source added.

CCB Asia began its roadshow for a potential euro-denominated bond in November, when it hired Deutsche Bank and HSBC to arrange a series of fixed-income investor meetings in Europe.

The euro market has been a regular source of funding for both Japanese and Korean banks. But the emergence of Chinese financial institutions and corporates in the European market is an indication that these borrowers are looking for diversification.

Additionally, the stronger US dollar has prompted Asian issuers to turn to other currencies as alternative form of funding, debt capital market bankers said.

“People are anticipating a higher US dollar, thus making other currencies more competitive in this landscape,” said a Hong Kong-based banker.

The Federal Reserve’s trade-weighted broad dollar index climbed 13% in the six months through January, and ended the month less than 1% from its high reached during the global financial crisis, in 2009.

Since the beginning of the year, the Europe market has seen one Chinese corporate tap the market. State Grid Corp of China raised a €1 billion dual-tranche bond on January 19. The €700 million five- and €300 million 12-year notes have a coupon of 1.5% and 2.45% respectively.

According to Dealogic data, only nine issuers that have tapped the European market since 2013, with volumes totalling $10.1 billion in equivalent value. 

The nearest comparables for the CCB Asia’s bond include the likes of its Korean and Japanese peers, said a source familiar with the matter. This translates into a fair value of around mid-swaps plus 125bp to 130bp range for the Chinese borrower’s note.

CCB Asia is the largest overseas subsidiary of CCB, representing 44% of CCB's total overseas assets at end-2013. The financial institution plays an important role in CCB's overseas expansion strategy and provides cross-border financing to CCB's clients on the mainland.

CCB Asia, Deutsche Bank and HSBC were the joint global coordinators and bookrunners of the A2 rated deal. Other joint bookrunners include Bank of America Merrill Lynch, CCB International and UBS.

¬ Haymarket Media Limited. All rights reserved.
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