China Construction Bank Macau branch, rated A1/A/A, has raised US$500m from an SOFR-linked green bond offering, which priced at SOFR plus 50bp, tightening from initial guidance of 80bp area.
The three-year Reg S bond marked the first time a green bond from the country has used the "common ground" taxonomy on sustainable finance that was announced by the EU and China last month as part of efforts to mitigate the effects of climate change.
The CGT, which is still at the consultation stage and is open for feedback until January 4 2022, will set the criteria for investment activities that can be defined as environmentally friendly.
While SOFR-linked dollar bonds and green issues from China are not new to the market, the use of the CGT, which was announced at the UN’s COP26 climate meeting in Glasgow, attracted attention.
According to a lead on the deal, if there are differences in EU and Chinese standards when looking at eligible projects, CCB will adopt the more stringent and/or detailed criteria. The lead expects more Chinese issuers to comply with the CGT in future when issuing green bonds offshore.
Proceeds will be used to fund and refinance loans to customers as well as activities that fall under the eligible projects in the bank's green bond framework.
CECEP Hundred Technical Service Beijing provided the reasonable assurance attestation report that the framework is aligned with the green bond principles set by the ICMA, the International Platform on Sustainable Finance and the Chinese Society of Technology Economics.
Third Chinese SOFR issuer
CCB is the third Chinese lender to gain exposure to SOFR.
Bank of China printed China's first SOFR bond in October 2019 with a US$350m three-year green offering through its Macau branch. It issued its second SOFR bond in August this year, when it priced a US$500m three-year deal via its Hong Kong branch at SOFR plus 48bp.
Later the same month, China Merchants Bank issued a US$300m two-year SOFR sustainability bond at SOFR plus 50bp through its Luxembourg branch.
The pricing of CCB's new issue is in line with the fair value estimate of research firm CreditSights, which mainly referenced the secondary trading of the SOFR bonds of the two Chinese banks mentioned above, as well as the equivalent levels of fixed rate notes from other Chinese banks.
BOC's 2024 SOFR bond was quoted at a spread of 52bp and CMB's 2023 SOFR bond at 55bp on the day CCB marketed its SOFR deal, according to CreditSights.
Another lead on the transaction said the final pricing was inside existing Chinese banks' SOFR secondary, but added that the new issue offered a 5bp–7bp new issue premium compared with the fixed rate notes of China's big four banks.
The premium was offered because SOFR currently has a much smaller investor base in Asia and secondary trading is illiquid, he said.
"The transaction was quite challenging given the SOFR nature as well as the timing. Some investors have started their holidays or closed their books as it is close to the year-end, which limited the book size," he said. "But we were still able to achieve a benchmark size and bring in some quality international investors including big funds and central banks."
Orders had peaked at US$800m, including US$575m from the leads, when final guidance at SOFR plus 50bp was announced.
CCB's senior unsecured bond, with an expected A1 rating from Moody’s, will be sold under its green bond framework and drawn from a US$15bn MTN programme for CCB and CCB Hong Kong branch.
China Construction Bank Asia was sole green structuring adviser.
China Construction Bank, Agricultural Bank of China Hong Kong, Bank of China, China Citic Bank International, China Everbright Bank Hong Kong, China International Capital Corporation, China Securities International, CLSA, CMB Wing Lung Bank, Credit Agricole CIB, HSBC, ICBC, Industrial Bank Hong Kong, KGI Asia, Mizuho Securities, Nanyang Commercial Bank, Natixis, Shanghai Pudong Development Bank Hong Kong and Standard Chartered Bank were joint lead managers and bookrunners.
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