China raises US$4b in US dollar bond after attracting strong demand.

CHINA has raised US$4 billion through a US dollar sovereign bond issue, a term sheet showed, with the offer attracting robust demand from offshore investors despite an ongoing regulatory crackdown across industries and problems in the property market.

Investor bids for the 4-tranche deal reached US$23.2 billion, nearly 6 times the amount raised, official statistics published by advisers showed on Wednesday (Oct 20).

The sale comes at a tricky time for China: its economy is showing signs of slowing, while investors are worried about a regulatory crackdown and potential contagion from China Evergrande Group’s debt problems.

The strong appetite came after finance ministry officials told investors on a call on Monday (Oct 18) they were confident cash-strapped developer Evergrande posed no systemic risk, 3 people with knowledge of the matter said. The sources could not be named as the information had not been made public.

A People’s Bank of China official also said on Friday (Oct 15) that the spillover effect of Evergrande’s debt problems is controllable and individual financial institutions’ risk exposures are not big. Evergrande shares remain in a trading halt on the Hong Kong Stock Exchange after it missed a number of offshore bond interest repayments in the past few weeks. It is grappling with more than US$305 billion worth of liabilities.

The pricing for China’s dollar-denominated sovereign bond was set at 6 basis points above US Treasuries for the 3-year tranche, 12 basis points over for the 5-year, 23 basis points higher for the 10-year and 53 basis points above for the 30-year tranche. Final pricing for the deal was significantly lower than first flagged.

Initial pricing guidance was given to investors at 35 basis points over Treasuries for the 3-year tranche, 45 basis points on the 5-year tranche, 55 basis points on the 10-year tranche and 85 basis points on the 30-year tranche.

The spreads on each of the tranches were the lowest ever for a sovereign bond issue from China, the 3 sources with direct knowledge of the matter said. The 3- and 10-year tranches each raised US$1 billion, the 5-year raised US$1.5 billion and the 30-year US$500 million, the term sheet showed.

The bond offering comes as the world’s second-largest economy hit its slowest pace of growth in a year in the third quarter, hurt by power shortages and wobbles in the property sector.

Source: Businesstimes