A trio of Chinese local-government financing vehicles (LGFVs) are lining up debut offshore bonds as market conditions stabilise following the UK’s Brexit vote.
Chongqing Nan’An Development, Yunnan Metropolitan Construction Investment Group and Huai'An Development are all in the final stages of readying transactions.
So too is Bank of China, which looks set to bring its own debut green bond within the next day or two.
The transaction is likely to represent a new marker for both the green bond market and red bond market since the renminbi tranche will be handled by BOC's branch in New York, a city that has so far failed to embrace the currency’s internationalisation.
Bank of China, Citi and Wells Fargo will handle this tranche, while Bank of China, Bank of America Merrill Lynch, Credit Agricole and HSBC are joint global co-ordinators for a dollar and euro tranche, which will be executed from the bank’s Luxembourg branch. Joint bookrunners are BNP Paribas and CCB Asia.
According to Dealogic, companies from Asia ex-Japan region have raised $10.3 billion in green bond funding through 13 transactions so far this year, compared with $2.96 billion from 10 transactions for last year.
Bank of China looks set to boost 2016’s total by a considerable margin given its reputation for large, multi-currency benchmark trades.
Of the three LGFV’s, BBB+ rated Yunnan Metropolitan Construction Investment Group could well be first after completing a week-long marketing campaign.
"We’re still monitoring market conditions," said one source familiar with the company. "Trading activity is expected to be lukewarm for much of the week because US markets are shut on Monday due to the Independence Day public holiday."
Guotai Junan International and Citi are the lead managers of the transaction.
Second is likely to be BB+ rated Huai'An Development. The group will provide a keepwell and liquidity support deed for its bond, which will be issued under the name of Xiangyu Investment (BVI) Co Ltd.
Joint bookrunners are Guotai Junan International, BOC International and ANZ.
Finally, BBB+/BBB+ rated LGFV Chongqing Nan’An has hired CICC Hong Kong Securities, Bank of China, ICBC Asia, Shanghai Pudong Development Bank Hong Kong branch, Standard Chartered and Wing Lung Bank to work on its maiden offering.
One syndicate banker said the company plans to meet institutional investors in Hong Kong, Singapore and London this week.
"This transaction will stand out because it will be the first LGFV from Chongqing to issue dollar-denominated debt with its own credit rating," the banker commented, adding that the issue size will depend on market conditions.
Typically LGFV dollar-denominated deals range from $300 million to $500 million in size and incorporate three-year tenures, since investors prefer shorter dated maturities for government-backed notes, which are used to fund local infrastructure and real estate projects.
One Singapore-based fund manager said he expects to see more BBB+-rated LGFV bonds given investment-grade yields have narrowed to about 3.2% from 4.3% in February.
The most recent benchmark LGFV deal has also come from the Brexit turmoil unscathed, rising almost one point in price terms since its launch on June 20.
A $300 million 3.25% June 2019 deal for Wuxi Construction & Development is currently trading on a mid-price of 100.75% compared to a launch price of 99.983%. In spread terms it is still being quoted at 240bp over where it launched.