China Development Bank to issue yuan bond in Hong Kong

HSBC and Bank of China are reportedly mandated on the deal. Meanwhile, Kia Motors, MISC and China Glass attempt to price in rocky markets.
China Development Bank (CDB) is set to issue the first yuan-denominated bond in history in the Hong Kong market, after a recent rule change by the PeopleÆs Bank of China allows financial institutions to issue bonds in the interbank market.

Meanwhile, Kia Motors, MISC Bhd and China Glass are also in the market, attempting to price their fixed-income deals at a time of unusual market movement.

HSBC and Bank of China are reportedly mandated on the CDB deal. The two-year issue is expected to have a 3% annual coupon, slightly more aggressive than the onshore trading level due to the rarity value of the paper and the retail distribution expected on this issue. The bonds, will allow retail and institutional investors (banks holding renminbi deposits) exposure to both a high-quality credit and a higher interest rate compared to the only current renminbi investment alternative, namely deposits in Hong Kong commercial banks.

Bond issuance this week will take place amid highly volatile conditions. V1X, an index of bond market volatility, has hit 16 in the last 10 days, compared to 12 recorded two weeks ago, and three recorded last month. This figure had declined to almost zero in the last few years (though it peaked at 47 immediately following the 2001 terrorist attacks in the US). According to sources on the buy-side, the current level should not prevent the bonds that are now in the market proceeding, but it will add some price friction that investors may not be used to.

Kia Motors, the Korean car manufacturer, is due to launch a five-year issue, managed by Credit Suisse, JPMorgan, Korea Development Bank and UBS to price Thursday. Guidance has been released in the area of 90bp over Libor, after a non-deal roadshow which reportedly left investors with mixed feelings. Despite being pitched on the same level as Hyundai Motor Company (the partner companies have the same Baa3 ratings), some investors are concerned about KiaÆs loss-making figures in 2005 and 2006.

Sources told FinanceAsia that the deal could price at 89bp should the market remain stable, but has the potential of widening to 91bp-92bp should the market sell off. However, $300 million worth of paper at 90bp over Libor will price at a premium to Hyundai. Hyundai CapitalÆs 2012s have been quoted as comparables, and were trading yesterday at 65bp over Libor, while LGÆs 2012s were trading at 80bp over Libor.

Kia became a consolidated subsidiary of Hyundai in 1999.

Meanwhile, Malaysia International Shipping Corporation (MISC) is due to price a $750 million deal mid-week - rumoured initially to be $1 billion in size. Bookrunners Citi and Deutsche have released guidance of 40bp above mid-swaps for the 10-year offering. The company (rated A2) issued its debut dollar bond in 2004, under the lead management of Barclays and Citigroup. The company is 62.44% owned by Petronas, the national oil and gas company.

China Glass is also in the market with a $120 million five-year dollar-denominated bond. The company (rated B1/B+) is the second-largest flat glass manufacturer in China in terms of capacity, and stands out by not belonging to the Chinese real-estate sector.
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