China state-owned debuts spur G3 activity

It has been a busy week for Chinese government-owned entities, which have been raising inaugural dollar funding before Treasury yields start trending up in 2014.

Chinese state-owned enterprises (SOEs) have been actively selling maiden bonds this week before funding costs spike next year as Federal Reserve tapering speculation mounts on positive US data.

On Thursday, China State Shipbuilding Corp (CSSC) and Baoshan Iron & Steel became the latest Chinese SOEs to seize the chance to raise cash before year-end, selling a total of $1.3 billion of dollar bonds to finance overseas operations or asset acquisitions.

China Merchants Land’s $500 million note on Wednesday and Agricultural Bank of China’s $500 million deal on Tuesday add another $1 billion to that pool, meaning a total of $2.3 billion have been raised by Chinese government-owned entities this week.

“Overall activity in December is still going to be fairly busy because of the Thanksgiving holiday that we had last week and a number of issuers are hoping to get their transactions done before year-end, particularly Chinese SOEs,” said a Hong Kong-based syndicate banker.

Chinese issuers alone have increased their issuance of US dollar-denominated debt by roughly 75% year-on-year, in part helped by expectations that the renminbi will appreciate against the dollar, meaning they are likely to find it cheaper when it comes to repaying dollar debt, experts add.

Another factor that has spurred G3 bond activity this week is the fact that there are rising expectations the Fed will slow bond purchases as soon as this month, supported by positive economic data that have emerged out of the US.

The US government reported that initial claims for unemployment benefits dropped to 298,000, declining for a third consecutive week and below expectations for a rise to 325,000. In another sign of strength in the economy, the Commerce Department said gross domestic product grew at an annualised 3.6% rate in the third quarter, the fastest pace since the first quarter of 2012.

On Thursday, the 10-year US Treasury yields reached 2.88%, which is the highest since September 18, according to Bloomberg Bond Trader data.

CSSC and Baoshan’s debut dollar issuances

CSSC Capital 2013 raised a $800 million three-year bond on Thursday – the first ever note guaranteed by  standby letters of credit from China Construction Bank (CCB), according to a term sheet seen by FinanceAsia. The note has a 2.75% coupon.

Although investors are looking to wind down their portfolio positions towards year-end, there was strong investor appetite for CSSC’s notes. It was oversubscribed by 3.1 times, obtaining an order book of $2.5 billion from about 110 accounts.

This enabled the issuer to tighten pricing by 25bp from an initial price guidance of Treasuries plus 250bp, highlights a source close to the deal.

“Most of the time towards year-end liquidity will be much tighter but I think the issuer has done a very good job in terms of doing an intensive road show,” said the source.

Asian investors subscribed to 85% of the A1- rated notes, while the rest went to European investors. More than half of the paper got allocated to financial institutions, fund managers and asset managers received 34%, pension and sovereign wealth funds 4% and private banks and others 5%.

Meanwhile, Bao-Trans Enterprises sold a $500 million five-year dollar bond on Thursday, with liquidity support covenants and a keepwell deed provided by its parent. The Reg S note was priced 20bp tighter than its initial price guidance of 265bp and has a coupon of 3.75%

CCB International, Bank of China and Barclays are joint global coordinators and bookrunners of CSSC’s deal. Other bookrunners include Citic Securities International and Mitsubishi UFJ Securities.

HSBC and Deutsche Bank are joint global coordinators and bookrunners of Baoshan’s A-/Baa1 rated deal. Other bookrunners include Bank of China and ICBC International.


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