CDB re-opens Silk Road bonds

Chinese policy bank takes advantage of calmer market conditions to re-open last September's dollar- and euro-denominated bond issue.
Back on the Silk Road
Back on the Silk Road

China Development Bank (CDB) took advantage of calmer market conditions on Wednesday to re-open and more than double last September's euro- and dollar-denominated bond issue.

Timing and execution of the policy bank's new $1 billion and €1 billion ($1.09 billion) deal appeared to be a success in marked contrast to its last outing when it lost two syndicate banks in a row over hard underwriting and picked a bad day when the market was unnerved by China's industrial production figures.

This time round, it chose a good window when there was little competing issuance, with most prospective borrowers opting to wait out the results of the Federal Open Market Committee's latest monthly meeting scheduled for Wednesday US time. 

Secondary spreads were also stable throughout the Asian trading day following another torrid trading session on Tuesday when investment grade credit followed the Shanghai Composite's downward lurch and closed about 3bp to 6bp wider.

The more benign market conditions enabled the Aa3/AA- rated bank to double the size of last September's Silk Road bond, so named because of its multi-currency structure. It has now created a fairly sizeable benchmark by Asian standards, particularly in Euros where there are very few deals above the €1 billion mark.

Both tranches also attracted strong demand. The dollar tranche built an order book of just over $2 billion by the time final guidance was released, while the euro tranche attracted €1.75 billion ($1.9 billion) ahead of final guidance.

It is fairly unusual to see such a strong order book in euros relative to dollars. However, bankers said the dollar tranche had a greater number of investors than the euro-tranche, which was underpinned by strong anchor orders from some of the syndicate banks European branches.

Initial price guidance for the $1 billion dollar tranche was marketed at 100bp over Treasuries, before being tightened to 85bp over. Final pricing was fixed at 100.913% on a yield of 2.293%, equating to 85bp over Treasuries.

At the end of the Asian trading day, CDB's outstanding $1 billion 2.5% October 2020 deal was trading on a bid/offer price of 101.19%/101.42%, a yield of 2.23%/2.18% and a spread of 80bp/75bp over Treasuries according to one brokerage house.

This means the new deal has offered a 7.5bp pick up in terms of Treasuries, a tight level compared to the 10bp to 15bp US borrowers have recently been offering for re-openings.

At the end of last September, the original deal was priced at 99.613% on a yield of 2.583% and spread of 120bp over Treasuries. Following a slight dip in initial secondary market trading, the deal traded up to 101% by late October and a new peak of 101.66% a few days ago. 

In terms of euros, the syndicate initially marketed the deal at 85bp over mid-swaps before pricing at 75bp over.

In the secondary market, the €500 million 0.875% October 2018 deal was trading on a bid/offer price of 99.39%/100.75% to yield 0.54%. 

This deal was initially priced at 99.856% to yield 80bp over mid-swaps. It also dipped down in initial secondary market trading before recovering to a high around the 100.67% level in mid-December. It has been on a rising trend again since early January.

Bookrunners for the dollar tranche were: BoCom Hong Kong, KGI Asia, CCBI, ICBC, ABCI, Standard Chartered, JP Morgan, HSBC, Mizuho and Bank of China.

Bookrunners for the euro tranche were: ICBC, CCB Europe, BoCom Hong Kong, Deutsche Bank, Bank of China and Credit Agricole. 

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