China Cinda prices first PRC asset management dim sum

The asset manager handling China's bad loans gives investors comfort through a keepwell agreement, intercompany loan and share pledge.
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China Cinda management announcing first-half profits of Rmb4.5 billion earlier this year
<div style="text-align: left;"> China Cinda management announcing first-half profits of Rmb4.5 billion earlier this year </div>

China Cinda Asset Management closed a Rmb2 billion ($321 million) dim sum bond on Wednesday — the first dim sum bond from a Chinese asset manager. The deal was also the largest unrated dim sum bond from a Chinese state-owned enterprise this year.

China Cinda is 83%-owned by China’s Ministry of Finance and UBS, Citic Capital, Standard Chartered and National Social Security Fund hold the rest. It was one of four asset managers set up in 1999 to take on the non-performing loans held by China’s state-owned banks.

The issuer was Bitronic, a British Virgin Islands company, and there is a keepwell agreement with China Cinda. Such agreements are similar to letters of support, and allow mainland companies to issue offshore bonds without going through the arduous process of getting approval from State Administration & Foreign Exchange (SAFE) for a guarantee.

Initially, Chinese borrowers such as CNPC and Sinochem used keepwell agreements and issued by their Hong Kong entities, but they have become more prevalent in the dim sum market this year. Property company Gemdale first used it in July, with a number of mainland borrowers following suit. While they give investors some comfort, the language is not as tight as a guarantee and keepwell agreements are as yet untested.

“Unlike guarantees, keepwell agreements are not legally enforceable. It is very much dependent on the parent company and whether they want to defend their reputation,” said Ivan Chung, senior analyst at Moody’s. “But they offer mainland companies a more efficient way of raising funds offshore, as seeking Safe [State Administration of Foreign Exchange] approval for a guarantee takes a lot of time.”

The proceeds will be on lent to Well Kent International, which is wholly owned by China Cinda and used for the group’s financial services in the overseas market — so they will not be repatriated. In addition to the keepwell agreement, China Cinda also provided a guarantee for an intercompany loan to Well Kent International and Cinda Hong Kong, an offshore subsidiary, will be pledging its shares as security for the bonds.

The three-year bond priced to yield 4%, at the tight end of the 4% to 4.1% final guidance, after attracting over Rmb4.5 billion of demand. Asian investors were allocated 99% and European investors took the remaining 1%. Bank and funds were each allocated 40% and private banks were allocated 20%. Its bonds traded higher at 100.20/100.50 in secondary markets.

In addition to China Cinda, Latin American development bank Corporacion Andina de Fomento (CAF) also tapped the dim sum market with a Rmb600 million ($96 million) issue on Wednesday. The three-year bonds priced to yield 3.55%. CAF’s issue is rated Aa3/A+/A+

The pricing China Cinda achieved was said to be tight compared to CAF, based on the size of the former and its lack of a credit rating. “CAF is double-A rated whereas China Cinda is unrated and the latter managed to raise a large size of Rmb2 billion at comparatively tight pricing,” said a source.

Standard Chartered, UBS and Wing Lung Bank are joint global coordinators and bookrunners for China Cinda. ABC International, Bank of China (Hong Kong), BOCI, China Construction Bank International, Cinda Securities, Citic Securities, Credit Suisse, Goldman Sachs and Morgan Stanley are bookrunners. HSBC and Standard Chartered were joint bookrunners for CAF.

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