French bank Societe Generale closed its debut Rmb500 million ($79 million) three-year dim sum bond on Friday evening. So far, foreign banks that have tapped the dim sum market are thought to have kept their proceeds offshore, but SG will repatriate the funds to one of its mainland subsidiaries through an intra-group loan.
“We believe this is the first time a foreign bank has issued a dim sum bond and has approval to repatriate the money back onshore,” said Yves Jacob, head of debt capital markets for Asia-Pacific at SG. “The proceeds will go towards our onshore subsidiary, SG Equipment Leasing, which lends to small-to-medium companies onshore.”
The subsidiary has access to the mainland loan market, but the offshore market offered an alternative pool of liquidity. “We are tapping the dim sum market to diversify our funding sources and also because the cost of funding is competitive compared to the onshore loan market,” said Jacob.
SG paid a coupon of 5% for its three-year bond and the notes were priced at par. China’s benchmark rate is 6.56% and, as banks are required to lend at the benchmark rate plus or minus 10%, assuming it had tapped the onshore loan market, SG would have been expected to pay 5.85% to 7.15%.
SG has been operating in China for the past 30 years and is the only French bank to provide retail banking services in China.
The bonds mature on April 19, 2015 and the issue is expected to be rated A1/A/A+.
Funds were allocated 44%, private banks 34%, banks 15% and the rest went to other investors. Singapore investors were allocated 40%, Hong Kong investors 37%, the rest of Asia 17% and the EU 6%. Standard Chartered was joint bookrunner, alongside SG’s investment banking arm, SG CIB.
Other foreign banks to tap the dim sum market include Raiffeisen Bank International, which tapped the market with a Rmb750 million two-year dim sum last month that paid a 4.55% coupon, and Emirates NBD, which tapped the market with a Rmb750 million three-year dim sum that paid a 4.875% coupon in early March. Emirates subsequently reopened the deal to bring the total deal size up to Rmb1 billion.
CNPC uncorks massive demand
China National Petroleum Company, the parent company of PetroChina, priced a $1.15 billion dual tranche bond early Friday morning, uncorking a massive $12.3 billion of orders from investors. The $650 million five-year bond priced at Treasuries plus 185bp, while the $500 million 10-year bond priced at Treasuries plus 190bp. Both tranches came about 20bp inside of initial guidance of Treasuries plus 205bp and 210bp respectively.
Citi and ICBC International were joint global coordinators and bookrunners. BOC International, Deutsche Bank, HSBC, Morgan Stanley and Standard Chartered Bank were bookrunners. Bank of America Merrill Lynch, CCB International, Credit Agricole CIB and ING were co-managers. The bonds were issued through CNPC Finance HK, a wholly owned subsidiary.
The five-year tranche attracted orders worth $5.6 billion and the 10-year tranche attracted $6.7 billion. The bonds were mainly allocated to Asian investors, which took up 57% and 55% of the five- and 10-year tranches respectively. US investors were allocated 22% and European investors 21% of the five-year tranche. For the 10-year bond, US investors were allocated 30% and European investors 15%.
While the deal was being marketed at initial guidance stage, one trader said that the new bonds were “cheap” relative to the price in the secondary market. “They are offering about a 30bp pick up over the outstanding bonds, so I expect people will switch out of the old bonds and into the new bonds,” said the trader.
According to a banker, CNPC’s outstanding 2016s were at Treasuries plus 155bp and the 2021s were at Treasuries plus 160bp so the new bonds came about 30bp wide of that for a one-year extension. He added that the new CNPC 2017s came with a new issue premium of about 9bp and the 2022s about 12bp, after adjusting for the curve extension. In secondary, both tranches tightened about 10bp, with the CNPC 2017s at Treasuries plus 178bp and CNPC 2022s at Treasuries plus 180bp.
CNPC last tapped the bond market in April 2011 when it raised $1.85 billion through a dual-tranche bond. Citi, Standard Chartered and ICBC were joint global coordinators and bookrunners. BOC International, Bank of America Merrill Lynch, Deutsche Bank and HSBC were also joint bookrunners for that deal.