Curtain raiser
The Shenzhen municipal government printed the first municipal offshore renminbi bond from a Chinese local government in October, adding welcome diversity to the Dim Sum market, and, more importantly, setting a template.
The landmark Rmb5bn (US$775m) three-tranche transaction from the coastal city in the southern part of Guangdong province supported several initiatives. The deal helped to expand the initial investment scope of the southbound Bond Connect scheme, through which investors in mainland China can invest in the Hong Kong bond market, and contributed to the nation’s carbon neutrality mission through its green tranches.
The Reg S unrated deal consisted of Rmb1.1bn 2.6% two-year, Rmb1.5bn 2.7% green three-year and Rmb2.4bn 2.9% green five-year tranches, all priced at par. Final pricing was well inside the respective initial price guidance of 2.95%, 3% and 3.2% areas.
Shenzhen’s deal also set a fresh, liquid benchmark for Chinese issuers in the CNH market. More local governments, in particular those from coastal provinces with strong credit profiles, are expected to explore opportunities for offshore bond issuance, helping them to diversify their funding sources and giving them access to international investors.
Just a day after the Shenzhen deal, the Guangdong provincial government priced a Rmb2.2bn three-year offshore bond at par to yield 2.68%, inside initial guidance of 3% area.
The Shenzhen bonds are listed on the Stock Exchange of Hong Kong and the Guangdong bond is listed on the Chongwa (Macao) Financial Asset Exchange. The deals were seen as a way for the local governments to support the development of the often stunted CNH market in Hong Kong and Macau, as well as the development of the Guangdong-Hong Kong-Macao Greater Bay Area, a government scheme to create a southern economic hub.
Shenzhen’s credit strength and its bond’s scarcity value attracted global investors. Orders reached Rmb19.03bn at the peak and stood at Rmb17.4bn after final price guidance. Eighty-nine accounts from eight countries/regions, including Europe and the Middle East, participated.
The Shenzhen deal came as the Chinese currency strengthened and the Dim Sum bond market recovered from a spell of tepid activity. Now that Shenzhen has put municipal Dim Sum bonds on the map, the market is set to draw increased attention.
Bank of China, Standard Chartered, China International Capital Corp, CLSA, Bank of Communications, China Construction Bank (Asia), China Merchants Securities (HK), China Minsheng Banking Corp Hong Kong branch, China PA Securities (Hong Kong), Citigroup, CMB International, Credit Agricole, Guosen Securities (HK), ICBC (Asia), JP Morgan and Mizuho Securities were joint lead managers and joint bookrunners.
BOC was the sole green structuring adviser.
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