Longfor was hoping to raise Rmb2bn ($148m) split equally between three year and five year tranches, but investors turned out to be wedded to the short-end of the curve. After the issuer proved flexible, the deal eventually closed with a Rmb1.7bn three year note and only a five year note worth just Rmb300m, according to the China Foreign Exchange Trade System (CFETS).
The two tranches priced at 4.8% and 5%, respectively, landing in the middle of the price guidance ranges, which were 4.3%-5.3% and 4.5%-5.5%.
The investor focus on the short-end reflected a similar move in government bonds over the last week. Three year and five year Chinese government bonds were trading at 3.471% and 3.513% on July 21, respectively. But whereas the three year yield had moved down from 3.492% on July 14, the five year was up from 3.501%, according to CEIC data.
It is fairly common for Panda bond issuers to approach investors with two tranches, allowing them some flexibility to adjust in the face of changing demand, said a banker familiar with the deal.
“It is a helpful way to ensure a successful issuance,” he said. “Issuers will decide how much goes towards each tranche according to the market demand.”
Longfor’s deal came ahead of the pricing of China Resources Land’s second Panda, which is set to price on Monday afternoon.
But July also saw the emergence of issuers other than red chips. Maybank priced its first Panda, a Rmb1bn 4.6% 2020 bond, on July 21, and Hungary published a prospectus for its Rmb1bn debut deal on the same day. The Province of British Columbia is also returning to the market.
This Panda bonanza reflects issuers’ desire to make the most of the stable environment in the onshore market, said the banker.
“There is no doubt that the bond market is doing a lot better than in May and June,” he said. “There is a lot more certainty right now, and there is more liquidity. But no one knows if this situation will last, so everybody is hoping to seize this window of opportunity.”
The PBoC injected Rmb710bn into the money market market last week, the biggest liquidity boost from the central bank since mid-February and over three times the size of a week earlier, according to CFETS. The central bank continued easing liquidity in the system this week, adding another Rmb350bn on Monday.
Longfor mandated Citic Securities and Industrial and Commercial Bank of China as lead arrangers of this deal, which was sold in the interbank market. The issuer and the bond are rated AAA by domestic credit rating agency, Shanghai Brilliance Credit Rating and Investors Service.
Although the deal only had two lead arrangers managing the execution, a swathe of banks joined as underwriters. The list of underwriters comprised: Bank of China, Bank of Dongguan, Bank of Jiujiang, Bank of Luoyang, Bank of Ningbo, China Citic Bank, China International Capital Corporation, China Merchants Bank, CSC Financial, Donghai Securities, Everbright Securities, ICBC, Shanghai Rural Commercial Bank and Shenwan Hongyuan Securities.