Two Chinese state-owned borrowers entered the international bond markets on Tuesday hoping to capitalise on diminished supply with aggressively priced deals.
The Export Import Bank of China (Chexim) raised almost $3 billion from a three-tranche Silk Road bond, while Yunnan Provincial Energy raised $300 million from a debut deal.
However, the trading performance of this week's $250 million issue by property develop Aoyuan and last week’s $1.5 billion three-tranche offering by Sunshine Life Insurance may give investors pause for thought and persuade borrowers to rein in their expectations.
Both achieved strong order books - $6.5 billion for Sunshine Life and $2.1 billion for Aoyuan. Both have traded down, with Aoyuan closing its first day of secondary market trading on Tuesday at 99.65%/99.95% compared to an issue price of par.
Chexim achieved a peak order book at exactly the same $6.5 billion level of Sunshine Life for the two dollar tranches of its new Reg S deal. Bankers said that demand was pretty evenly split between the two.
A three-year euro tranche built up €2.5 billion ($2.84 billion) in orders.
The Aa3/AA-/A+ rated borrower initially marketed its five-year dollar tranche at 100bp over Treasuries before tightening guidance to 85bp to 90bp over.
Final pricing for the $1.25 billion tranche was fixed at 99.504% on a coupon of 2% to yield 2.105% or 85bp over Treasuries, according to a term sheet seen by FinanceAsia.
The 10-year notes were initially marketed at 135bp over Treasuries before guidance was tightened to 120bp to 125bp over.
This $1 billion tranche was priced at 98.961% on a coupon of 2.875% to yield 2.996% or 120bp over Treasuries.
The closest comparable for the five-year tranche was Chexim’s outstanding $1.5 billion 2.5% July 2019 bond. This was trading on a G-spread of 89bp at Asia’s open on Tuesday.
This means the new 2021 deal has priced 4bp through the 2019 deal despite being two years longer. Key will be whether ongoing and strong demand from the Chinese banking sector for short-dated paper will be enough to hold this level up during secondary trading.
Where the 10-year tranche is concerned, Chexim has a $1.5 billion 3.625% July 2024 note outstanding. This was trading Tuesday on a G-spread of 115bp, which means the new deal has offered a 5bp pick-up for a two-year maturity extension.
The final component of the deal was a maiden euro-denominated tranche. This was initially marketed at 75bp over mid-swaps before pricing was tightened to between 55bp and 60bp.
Final pricing of this €650 million 2019 tranche was fixed at 99.848% on a coupon of 0.375% to yield 0.426% or 55bp over mid-swaps.
A syndicate banker said the fair value lies around the high 50bp level, suggesting a slim new issue premium.
The closest comparable is China Development Bank's €1.5 billion 0.875% October 2018 notes, which were trading on an I-spread of 49bp, according to bankers familiar with the deal.
"Chexim is very happy that it’s priced its first euro-denominated debt inside the trading curve," said one person familiar with the transaction.
Indeed both CDB and Chexim have a reputation for pushing pricing to its limits rather than setting a good example for other borrowers by leaving a couple of basis points on the table for investors and seeing their deals trade well in the secondary market.
Chexim’s last benchmark deal executed in September last year had a loan-based structure via Avi Funding, which investors disliked and was late being freed to trade. It consequently traded down.
This time round Chexim has rectified this by issuing in its own name.
Joint bookrunners for the euro-denominated tranche were: Bank of China, Bocom Hong Kong Branch, Barclays, Credit Agricole CIB, HSBC and ING.
Supply heats up from South West China
Yunnan Energy Investment Finance was also in the market on Tuesday with an inaugural $300 million issue.
The three-year deal is the second from the province so far this year and attracted a peak order book of $3.3 billion, or roughly 10 times oversubscribed.
This is very similar to level Yunnan Provincial Investment Holding achieved in late March for its $300 million offering.
BBB-rated Yunnan Energy initially marketed its Reg-S deal at 245bp over Treasuries, before tightening it to 215bp to 220bp over.
Final pricing was fixed at 99.815% on a coupon of 3% to yield 3.065% or 215bp over, according to a term sheet seen by FinanceAsia.
The nearest comparable was Yunnan Provincial Holdings, which holds an 83.1% stake in the group. Its 3.375% three-year deal was trading on a G-spread of 205bp on Tuesday.
This means Yunnan Energy has offered a 10bp pick up over Yunnan Provincial Holdings and 15bp through the fair value level calculated by Mizuho based on its keepwell structure and smaller scale.
Syndicate bankers said the deal had been well received and shows how well Chinese issues are performing.
"This latest deal from the Yunnan provincial government sees a coupon compression from 3.375% to 3%," said one banker. "It was well-received by investors in Hong Kong and Singapore."
Bankers said asset mangers represented almost half of the entire transaction, followed by sovereign wealth funds.
However, one Hong Kong-based fund manager commented that Yunnan’s latest deal didn't look very attractive since it does not offer sufficient yield to compensate for the underlying risk.
"The credit profile of Yunnan Province is weaker than major cities like Beijing and Tianjin," the fund manager said. “There’s a very clear yield distortion even though the risk of default is very low”.
Proceeds are being used to fund assets in South East Asia.
Joint global coordinators for the offering were: Bank of China, Citi, Guotai Junan International, HSBC, while CCB International, China Merchants Securities (HK), CITIC CLSA Securities joined as joint bookrunners.