A Wuxi-based local government-financing vehicle (LGFV) made its debut the US dollar-denominated bond market on Monday, joining a growing number of Chinese municipal entities in the offshore markets.
The new LGFV deal comes at the time when global investors appear to be getting less nervous about the UK’s referendum on the EU, although bankers believe supply could remain constrained until the vote is cast on Thursday.
Stronger momentum pointing towards a remain vote helped push Asian credit spreads 3bp to 8bp tighter on Monday, while 10-year Treasuries were back out to 1.69% during New York hours on Monday, an 8bp widening day-on-day widening.
Wuxi Construction and Development Co attracted a fairly solid $1.4 billion order book at final guidance having initially marketed the BBB+/BBB+ rated deal at 260bp over Treasuries.
Guidance on the Reg S deal was then tightened to 240bp over. Final pricing of a $300 million June 2019 bond was fixed at 99.983% on a coupon of 3.25% to yield 3.256%, or 240bp over Treasuries, according to a term sheet seen by FinanceAsia.
The deal will be issued under the name of Xihui Haiwai Investment Holdings, while Jiangsu Province-based Wuxi Construction will provide a keepwell and liquidity agreement for the bond.
"We have not assigned a stand-alone credit profile to Xihui because it has virtually no operations at the moment." S&P said in a June 13 note. It added that the issuer’s stand-alone credit profile warranted a B rating, seven notches below its ultimate owner, the Wuxi municipal government.
In a research note published on Monday, MUFG credit analyst, Nicholas Yap, saw fair value at 231bp over Treasuries, or a Z-spread of 221bp. This implies a 9bp new issue premium.
Syndicate bankers said the closest comparables were Yunnan Investment’s unrated 3.375% April 2019 bond and Baa1-rated Anhui Transportation's July 2.875% 2018 note. The former was yielding 3.21% or a Z spread of 227bp while the latter was quoted on mid-yield of 2.78% or 191bp on a Z-spread basis.
S&P said it considered Baa1/BBB+ rated Tianjin Binhai New Area Construction and BBB- Qingdao City Construction as the closest comparables in terms of ratings. The former has a 3.1% July 2018 bond, which was quoted Monday at 3.1% or a Z-spread of 222bp, while the latter has a 4.75% February 2020 bond at 264bp over on a Z-spread basis.
In a recent research report, HSBC forecast that US dollar denominated issuance by Chinese LGFVs is likely to double to more than $20 billion over the next 12 months.
The bank says issuance has rise to $10.5 billion so far this year excluding Wuxi, up from $8 billion in the end of last year and $2 billion in 2014.
“We prefer big city metros/railways given their strategic importance and predictable cash flows,” analysts wrote in the report. “We are negative on LGFVs linked to land sales/new area development.”
Wuxi provides construction and financing for urban infrastructure.
Meanwhile, Jiangsu Hanrui Investment Holdings has hired Guotai Junan International and China Securities International for a Reg S dollar denominated deal. It also provides urban infrastructure in Zhenjiang.
Joint global coordinator of the Wuxi transaction were Standard Chartered, JP Morgan, and Wing Lung Bank, while China Minsheng Hong Kong branch, Shanghai Pudong Development Bank Hong Kong branch, HSBC and Bocom Intenational were joint bookrunners.
