Chexim braves storm with dollar, euro bonds

The Chinese policy lender sells a mix of dollar and euro bonds, offering a new issue premium only on its longest-dated tranche

Export-Import Bank of China (Chexim), one of the country’s ‘big three’ policy lenders, returned to the international debt market on Tuesday with a $3.056 billion multi-tranche bond.

The issuer braved volatile secondary markets ahead of a Federal Reserve meeting next week, when the US central bank is widely expected to hike interest rates. That volatility has hurt demand for other bonds this week, and appeared to be a factor in the delay of Indian film producer Eros International’s dollar bond.

"Investors have generally adopted a wait-and-see approach this week because of the Fed meeting," a syndicate banker said. "The market has been less receptive to new deals in the past few days."

But Chexim, boasting AA-/Aa3/A+- ratings and a large existing investor base, was able to get away with a successful deal in two currencies.

The policy bank issued two dollar denominated bonds — a $1.15 billion five-year and a $850 million 10-year — as well as turning to euro investors with a €1 billion ($1.056 billion) three-year note. The two dollar tranches generated than $3 billion of orders before the final price guidance was announced, while the euro bid got as high as €1.6 billion, bankers familiar with the deal said.

The demand for the dollar tranches was lower than Chexim managed the last time it issued in the currency, perhaps a sign of caution among investors this week. In April, the issuer got around $6.5 billion of demand for a $3 billion ‘Silk Road’ bond. But on its short-dated tranche, at least, Chexim did not have to offer investors a new issue premium.

Bankers working on the deal set initial guidance for the five-year note at 110bp over US Treasuries, before slashing that to between 85bp and 90bp and pricing the deal at the tight end of guidance. The March 2022 bond was fixed at 98.77 with a coupon of 2.625%, offering investors a 2.891% yield.

The March 2027 bond, meanwhile, was initially itched at 130bp over the 10-year US Treasuries, before being narrowed to 110bp over the Treasuries. The bond ended up closing at that level, being fixed at 98.009 with a coupon of 3.375% and a yield of 3.614%.

Bankers said the best comparables were the outstanding bonds of China Development Bank. They used CDB’s $1 billion 2.625% 2022 note and its $500 million 3.375% 2027 note as the valuation yardsticks. The former was trading on a G-spread of 85 bp and the latter was trading at a G-spread of 103bp.

“Based on the G-spread, Chexim’s new five-year deal was priced inside or in par with CDB, but the issuer was being more generous to investors in the 10-year deal in order to compensate them for rising interest rates,” a syndicate banker told FinanceAsia.

In secondary trading on Wednesday, the two dollar bonds were trading a touch tighter than reoffer. The five-year bond was quoted at 85/80bp over US Treasuries, while the 10-year bond was quoted at 111/108bp over the Treasuries, according to market data.

For the euro offering, the leads went out with initial price guidance of 40bp over mid-swaps, before narrowing spread guidance on the three-year note to between 30bp and 35bp. They once again managed to price the deal at the tight end. The March 2020 deal will pay a coupon of 0.25%.

The group plans to use its new proceeds for general corporate purposes.

The bookrunners of Chexim's new dollar offering were Bank of China, Barclays, Bocom Hong Kong branch, Bocom International, Credit Agricole, ING, KGI Asia, MUFG, Westpac.

Bank of China Barclays, Bocom Hong Kong branch, Credit Agricole, ING and MUFG were the bookrunners of the euro tranche.

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