Welcome! Citic opens samurais to Chinese

Chinese issuers had been absent for the samurai bond market for 16 years. But after Citic Group broke the mold, they now have a pricing benchmark.

Chinese investment conglomerate Citic Group raised ¥100 billion ($965.5 million) from the Samurai bond market this week, becoming the first Chinese issuer to tap the market in 16 years.

The company split the deal between a ¥28.2 billion three note paying 0.48%, a ¥46.8 billion five year tranche yielding 0.67%, a ¥20 billion seven year coming at 0.85% and a ¥5 billion 10 year tranche paying 1.05%.

The deal represented a rare new issuer segment for Japan’s famously cautious investor base, and heralded Citic’s return after two decades away.

Perhaps more importantly, the success of the multi-tranche deal has given bankers hope the bond can be used as a pricing benchmark for future issuance.

“Citic is one of the best credits out of China, and they are still owned by the government,” said a senior debt banker in Tokyo. “People can view this as a benchmark for Chinese credits going forward. There could be more.”

The last time a Chinese issuer tapped the Samurai bond market in 2000 – when the government itself sold around $285 million worth of bonds – China was a very different place. As, indeed, was Japan.

The absence of Chinese issuers from the market is, in part, down to defaults that occurred among Chinese issuers in the early 2000s, something that made it harder to bring these credits back to the market for many years to come.

The explosive growth of China since that time has no doubt made a major difference to the willingness of Japanese investors to accept these credits. But Japan’s tepid yield environment — strained by the negative interest rate policy of the central bank — will certainly have helped matters.

Citic was also helped by the fact that a Japanese trading house Itochu is a key shareholder.

Last year, Itochu and Thailand's CP Group collectively spent $10.4 billion for a 20% stake in the Chinese company, following a massive $36.8 billion restructuring that injected the parent's assets into the Hong Kong-listed unit, Citic Pacific.

Syndicate bankers said Citic's samurai bonds were well received by domestic investors, including life and non-life insurers, asset managers, banks, regional lenders and community-focused "shinkin" lenders — that is credit unions — as buyers queued up in search of yield.

"Japanese investors were the natural buyers of the deal, but there were some international investors as well," a Tokyo-based bond banker said.

But Citic did not score without some hard work. Bankers said Citic funding officials had taken three different trips to meet investors in Japan over the last six months.

The final order book was two times oversubscribed, Citic said in a statement on Thursday.

SMBC Nikko Securities, Daiwa Securities, Mitsubishi UFJ Morgan Stanley, Mizuho Securities and Nomura were joint bookrunners of the deal.

¬ Haymarket Media Limited. All rights reserved.
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