China Railway Group, one of the country's largest construction companies, has proven its status as a top state-owned enterprise as it priced a $500 million US dollar denominated debt in the international bond markets inside its existing secondary curve.
The 10-year debt offering comes a day after state-owned China Minmetals issued a $1 billion dual-tranche bond, sucking part of the liquidity out of the market and adding pressure on other new issues.
The A3/A-/BBB+rated company obtained a peak order book of $5.5 billion before the release of final guidance, in line with what Baa1/BBB+-rated China Minmetals had achieved for its final order book of $5.5 billion.
"Competition was fierce among the underwriters to win the business of bond investors in the Reg S space," a source commented, adding that there was a smaller pool of Asian and European investors compared with the 144A market, where US investors are an important source of demand for a big sale.
Initial guidance of the July 2026 bond was set at 205bp over the 10-year Treasuries, before tightening to 170bp-175bp above. Final pricing of the $500 million note was priced at 99.586% on a coupon of 3.25% to yield 3.299, or 170bp over Treasuries, according to a term sheet seen by FinanceAsia.
The comparable used as a benchmark for the pricing was its outstanding 3.85% February 2023 notes, even though the bond was fairly illiquid in the secondary market. Prior to Thursday's new issue, the bonds were trading on 151bp over Treasuries, equivalent to a G-spread of 175bp.
That said, the company priced the new print inside the outstanding bond without taking the curve extension into account. A second source said there was a theoretical extension of 20bp between the 2023 and 2026 notes.
"The final price guidance was a lot lower than what the fair value of the 2026 bonds should stand," the person said.
China Railway Group, one of the two largest railway construction companies in China, operates in more than 68 countries and regions, building railways, road and other infrastructure facilities in Africa, the Middle East and Southeast Asia.
Joint global coordinators of the transaction were Standard Chartered and HSBC, while UBS, Bank of China, DBS and China Everbright Securities Hong Kong were joint bookrunners.
