Local Government Financing Vehicle Jinan West City Group jumped into the international bond markets on Tuesday, hoping to ride the success of a $1.1 billion issue by central government-owned China National Blue Star one day earlier.
The BBB- rated group managed to build up a peak order book of $1.4 billion for its $300 million five-year deal, which was sole-led by Standard Chartered.
The company initially went out with price guidance at 245bp over five-year Treasuries, before tightening it to 220bp over.
During the course of the Asian trading day, secondary spreads were wider across the board with sales desks noting selling pressure from China.
However, China National Bluestar bucked the trend with its $500 million 2019 bond tightening by 10bp at its peak before closing 5bp tighter than its issue price at 225bp.
The $600 million 2021 tranche was not quite so well bid and after tightening 5bp closed around its re-offer according to a number of brokers.
Final pricing for Jinan West’s Reg S October 2021 deal was fixed at 99.086% on a coupon of 3.125% to yield 3.325% or 220bp over Treasuries, according to a term sheet.
The final order book closed at $1.3 billion with 55 accounts of which 95% were from Asia and 5% from Europe. By investor type funds took 52%, banks 44% and sovereign wealth funds and private banks 4%.
Two close comparables are Chongqing Nan'an Urban Construction & Development's 3.625% July 2021 bond and Chongqing Modern Western Logistics' 3.25% September 2021 bond.
These were trading on G-spreads of 196bp and 203bp, respectively on Tuesday.
This means the new deal has offered a 15bp pick up over its LGFV peers. Chongqing Nan'an has a two-notch higher BBB+/BBB+ rating from Moody's and S&P, while Chongqing Modern Western Logistics has a one notch higher BBB rated from Fitch.
In a research note, Mizuho calculated fair value for the new deal at 230bp over Treasuries based on a 15bp differential with Qingdao City Construction’s 4.75% February 2020 bond, which was trading on a G-spread of 215bp on Tuesday.
Jinan West’s stand-alone rating would be four notches lower from S&P based on high leverage.
In a ratings assessment it flagged high level of government support given Jinan is “the sole platform of the municipal government for land development and major infrastructure construction in the Jinan West New Town District, which is one of three new towns under the city’s development plan.”
The so-call LGFVs - government entities that raise fund for local infrastructure investment - have raised more than $12 billion from the offshore bond markets so far this year, up from $8 billion for the full-year of 2015, according to data compiled by HSBC.