China International Capital Corp (CICC), the country’s first joint-venture investment bank, sold its debut offshore bond on Wednesday, raising $500 million.
The Reg S deal has been a long time in coming given the bank was founded in 1995 as a joint venture between Morgan Stanley and China Construction Bank.
But the long track record it has established since then, executing the overseas listings of China’s major state-owned entities, means CICC is a well-known brand with international investors and has a strong following domestically.
This, plus the bond’s three-year tenor, which strongly appealed to Chinese banks, also meant CICC was able to build up a sizeable peak order book of $6 billion.
However, an aggressive 32.5bp price revision led some yield-sensitive private banking demand to drop out according to syndicate bankers who said the final order book closed at $4.5 billion.
One banker described the outcome was "satisfactory," noting that CICC’s BBB+/BBB+ rated 2019 deal priced almost 10bp tighter than Citic Securities outstanding 2019 issue, which has a one notch lower rating from Standard & Poor’s.
The deal was initially marketed at 225bp over three-year Treasuries, before pricing was tightened to 2.5bp either side of 195bp over.
Final pricing in the name of CICC Hong Kong Finance was fixed at 99.826% on a coupon of 2.75% to yield 2.811%, or 192.5bp over Treasuries, according to a term sheet seen by FinanceAsia. The deal incorporates a keepwell structure and has been issued off a newly established $2 billion MTN programme.
A total of 196 accounts participated, with a split of 92% Asia, 8% Europe. By investor type, fund managers took 43%, banks 29%, sovereign wealth funds and insurers 17% and private banks 11%.
Syndicate bankers placed fair value around 190bp over Treasuries. They said this reflected the company's stronger government support relative to rivals such as Citic and Haitong Securities.
Central Huijin Investment, the domestic investment arm of China's sovereign-wealth fund, is CICC’s largest shareholder, with a 28.45% stake. Standard & Poor’s said it was this support, which lifts CICC two notches above its underlying stand-alone BBB- credit profile.
By contrast, Citic enjoys a one-notch uplift from its stand-alone rating.
Its 3.5% October 2019 deal was trading on a G-spread of 200bp according to the final sales note distributed by the syndicate.
Another comparable is BBB rated Haitong Securities, which has a 3.5% April 2020 bond outstanding. This was trading on a G-spread of 207bp on Wednesday.
Creating its own debt platform
CICC plans to use the proceeds from the debt sale to fund its offshore business and investments. The company has offices in Hong Kong, Singapore, New York and London.
Ironically the bond deal may presage a more active role in DCM for CICC, as the brokerage firm plans to expand its bond and structured financing units in a bid to diversify its revenue mix.
According to one source familiar with the company, CICC hired a team of 10 fixed income bankers from Standard Chartered last year, as a first step towards strengthening its offshore bond business.
To date, Beijing-based CICC is best known for winning lucrative IPO mandates and recently listed itself, raising $811 million from a Hong Kong flotation.
Prior to this, CICC led the $22 billion listing of Agricultural Bank of China back in 2010 - the world’s largest IPO until Alibaba went public. Its first major IPO was the $4.2 billion privatization of China Telecom, now China Mobile, back in 1997.
More recently, the company was one of the lead advisers on a $4.5 billion private funding round for Ant Financial, Alibaba's financial affiliate.
Last year, CICC’s gross revenues jumped 54.4% year-on-year to Rmb9.5 billion ($1.5 billion). Net profit soared 74.6% to Rmb1.9 billion over the same period, thanks to strong growth in fee and commission income from its M&A and brokerage businesses.
Joint global coordinators for the bond deal were: CICC Hong Kong Securities, Citi and Standard Chartered, while ABC International, Bocom Hong Kong Branch, China Construction Bank, Goldman Sachs, HSBC, ICBC, OCBC Bank, Wing Lung Bank were joint bookrunners.
This article has been updated with final deal stats.