China bond mandate split

Is this further evidence that the Chinese government is taking a more pro-European approach to mandate allocation?

In a shock move, China has just split its mega-bond mandate between European and US lead managers.

Yesterday, China announced that it would launch roughly $1.4 billion of bonds via Goldman Sachs, JPMorgan and Morgan Stanley. This would comprise a $1 billion 10-year deal and a E500 million ($440.83 million) transaction. The three US banks had been mandated to do a deal for China since 1999.

However, there was never a euro-denominated portion to this 1999 mandate, and when the European banks heard that a euro-deal would be done without a single European bank, they began to complain – or as it was put by one poetic source, “throw their toys out of their prams”.

Thanks to Sino-US tensions these complaints did not go unheard and the Chinese took the unusual decision to switch the euro-denominated part of the transaction to three European houses.

So while the dollar deal will still be led by the American firms, the Euro-deal will be led by Deutsche Bank, BNP Paribas and Barclays Capital. It will have a seven-year maturity.

Meanwhile, the US dollar tranche will only be sold to European and Asian investors since, for the first time, China has decided not to do an SEC registered 144a deal.

For the cynical, this looks like the Chinese are making a very public show of avoiding the American capital market.

It should be interesting to see six investment banks on a single roadshow. Such a bevy of lead managers has not been seen since the 1997 Bangko Sentral ng Pilipinas Yankee bond, and our readers are sure to remember what a stellar transaction that was (See FinanceAsia banana skin cover, May 1997).