SDIC's "investor-friendly" dollar bond debut

The national investment company sells a dual-tranche deal, drawing $11 billion of demand at peak.

State Development & Investment Corporation (SDIC), a national policy investment company established in 1995 by China’s State Council, raised $1 billion from its international bond debut on Tuesday, attracting an array of investors looking for stable returns.

The quasi-sovereign issuer tapped the offshore market with five- and 10-year bonds after US Treasury yields bounced back on Tuesday as investor confidence returned and the S&P 500 Index neared a record closing high. Although trading in Asian G3 bond markets was more mixed in the wake of Sunday’s reassuring French presidential vote, with some profit taking in investment-grade corporates, solid trading during European and US hours and the still-big investor appetite for new Asian issuance provided a springboard for both SDIC launches.

“[Demand] for the SDIC bond debut was extremely robust, collectively drawing a $11 billion order book for the two-part sale at peak level,” a syndicate banker running the deal said. “New issues continue to see strong demand as a large number of Chinese investors continue to look for offshore exposure.”

On Tuesday morning, SDIC, rated A1/A+/A+ by Moody’s/S&P/Fitch, pitched investors with initial price talk at 145 basis points over comparable US Treasuries for the five-year bond, before slashing guidance by 30bp to 115bp over. Final pricing for the $500 million May 2022 bond was set at 99.516 with a coupon of 2.875% to yield 2.98%, or 115bp over the five-year US Treasury, according to a term sheet seen by FinanceAsia.

For the 10-year bond, the initial guidance was 175bp above the US Treasury yield, before narrowing to 135bp over. Final pricing of the $500 million May 2027 bond was fixed at 99.776 on a coupon of 3.625% to yield 3.652%.

New issue premium

In terms of fair value, bankers used State Power Investment Corporation’s $900 million December 2021 note and its $300 million December 2026 note as benchmarks. 

State Power Investment Corp, rated A2/A/A- rated by Moody's/Fitch/S&P, is another state-owned investment company, serving the national interest and policy agenda.

The shorter-dated State Power Investment Corp bond was quoted at 97bp over the five-year US Treasury early Tuesday, or a G-spread of 103bp. On that basis, assuming a typical six-month curve extension of 5-7 bp for a five year bond, SDIC paid a decent new-issue premium to investors.

The longer-dated State Power Investment Corp bond traded at 122bp over the 10-year Treasury yield, or a G-spread of 123bp. Given a typical 12bp six-month curve extension at this maturity, the SDIC 10-year bond sold nearer to fair value, the banker said.

“In terms of valuation, the new five-year bond of SDIC looks more attractive than the 10-year note, as the latter was priced in line of the secondary curve of its comparable,” the banker said. "The five-year note offers some concessions to investors." 

The May 2022 bond captured demand totalling $4.5 billion from 220 accounts, while the 10-year bond drew $3.3 billion from 190 accounts.

In the secondary market, both bonds traded up by about 10bp on Wednesday morning. The 2022 bond was quoted at 104/102bp over the five-year Treasuries, while the 2027 bond traded at 127/124 bp over the 10-year curve, according to market data.

Joint global coordinators on the bond sale were BOC, Citi, and HSBC, while ICBC Asia, CCB Asia, Agricultural Bank of China Hong Kong branch, Standard Chartered, DBS, Goldman Sachs, Deutsche Bank, China CITIC Bank International, and Essence International were joint bookrunners.

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