Wednesday, 26 June 2019

Renminbi Bond

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Singapore-listed Global Logistic Properties raised the standard in the Panda bond market as the first foreign corporate issuer to tap onshore Chinese investors through a public offering.

GLP set out an effective path for potential foreign corporate names looking to raise funds in a nascent market where many rules are yet to be made clear.

The Rmb1.5bn (US$217m) dual-tranche print in mid-July broadened the Panda bond market beyond the list of overseas incorporated Chinese firms that had been the first to turn to the onshore bond market in search of lower yields, but were already well known to mainland investors.

GLP, which manages a portfolio of 229 logistics centres in mainland China, also set itself apart from the handful of sovereign and financial issuers which sold Panda bonds during the year predominantly to boost their profile, or for political reasons.

Largely driven by the need for onshore funding rather than currency arbitrage, GLP’s offering suited China’s regulators at a time when the renminbi’s depreciation was raising fears of capital flight.

Notably, GLP’s debut marked the first foreign issue in the smaller domestic stock exchange market, opening a new funding channel for foreign issuers alongside the much larger interbank bond market and proving that the exchange sector could also deliver competitive pricing.

Seen as a quality name with a China growth story, GLP appealed to Chinese investors, and the offering closed more than three times oversubscribed.

Sole lead underwriter CICC priced a three-year tranche at 3.12% and a five-year tranche at 3.58%. That beat earlier Panda issues from global financial institutions HSBC and Standard Chartered (Hong Kong), which both paid 3.5% for three-year deals in the interbank bond market in late 2015.

The majority of the investors were Chinese fund managers and bank-sponsored wealth management products, but foreign investors also took a small portion of the notes through RQFII schemes.

GLP, in which Singapore sovereign wealth fund GIC owns a 35.7% stake, has ratings of Baa2 from Moody’s and BBB+ from Fitch, while the issuer of the notes, Iowa China Offshore Holdings (Hong Kong), a 66.2% owned Hong Kong-based unit of GLP, is a AAA credit to Chinese rating agencies.

Well-known PRC investors, including China Life Insurance, China Development Bank International Investment, CITP Advisors (Hong Kong), China Post Life Insurance, Boyu Capital and Hopu Fund, own a combined stake of 30.15% in Iowa.

Issuing through a Hong Kong unit overcame a major hurdle for Panda bonds, as Hong Kong auditing standards are recognised by China’s Ministry of Finance as equivalent to those in the PRC.

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