China on Thursday launched a highly successful bond sale on Thursday, clearing the way for Chinese companies to follow in its wake to raise cash from global markets on attractive terms.
The dual-tranche sovereign bond worth the equivalent of $1.7 billion is Asia's biggest international debt offering so far this year and China's second global debt issue in 12 months.
"Today's success demonstrates that investors continue to view China as a premier issuer," said Hong Kong-based Max Blandon, managing director and co-head of Morgan Stanley's global capital markets division.
"This [benchmark] will allow Chinese companies to access new parts of the yield curve at attractive levels," said Blandon, whose bank was part of the group selling the dollar portion of the bond.
China, which had $470.6 billion in foreign reserves at the end of June, does not need to raise cash from global markets.
But the bond offering should help develop a yield curve on its international bonds, providing Chinese companies with an indicator of future borrowing rates.
Companies from China, which has long been a manufacturing base for global brands, are expected to increasingly buy rivals across Asia and elsewhere for access to key technology and research capabilities.
China sold a 1.0 billion euro, 10-year bond at 40 basis points (bps) over mid-swaps, tighter than the initial price guidance of 43 bps.
It sold another US $500 million, five-year bond at 60 basis points over comparable US Treasuries - also narrower than the than initial guidance of 63 bps over.
Despite the aggressive pricing, the dual-tranche offering was oversubscribed, prompting the Chinese government to lower the terms on offer.
The dollar tranche drew orders worth $1.5 billion, while the euro portion attracted orders worth 4.2 billion euro, sources familiar with the transaction said.
Domestic Chinese investors took 50 percent of the five-year dollar deal, while other Asian buyers accounted for 30 percent and the remainder went to non-Asian accounts.
By investor type, banks bought 70 percent of the dollar tranche, funds 14 percent, private banks 8 percent and others 8 percent.
European buyers took 83 percent of the euro tranche and the remainder went to Asian investors, sources said.
"People are very happy with the fundamentals of the credit. It's extremely creditworthy and that's why you have tight spreads," said Rafael Kassin, head of emerging markets fixed income at ABN Amro Asset Management in London.
"People perceive it as close to US government risk," Kassin said.
China, the world's fastest growing major economy, has strong credit ratings among Asian sovereigns. It is rated A2 by Moody's Investors Service and BBB-plus by Standard & Poor's.
BNP Paribas, Deutsche Bank and UBS were the lead managers for the euro deal.
Goldman Sachs, J.P. Morgan, Merrill Lynch and Morgan Stanley were managers for the dollar-denominated tranche.
China last sold US $1 billion of 10-year bond and 400 million euros of 5-year bonds in October 2003.
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