The People's Republic of China (PRC) has finally stepped up its long delayed plans to access the international debt market, announcing this week its intention to tap both the dollar and euro markets through a Eurobond issue - and not a global. The two tranche structure will mark the first time that the sovereign has arranged an international bond issue with a euro currency denomination. In a statement, the Chinese finance ministry said that the A3/BBB rated sovereign will start a roadshow for the Eurobond issue on Monday May 14, with one group beginning in Paris, and the other in Hong Kong before travelling to Europe as well. Vice minister of finance Jin Liqun will accompany the Hong Kong roadshow, while Xu Sangming, director general of the finance ministry, will be on the roadshow beginning in Paris. The multi-tranche deal may then be priced at the end of next week, depending on market conditions. Goldman Sachs, JP Morgan and Morgan Stanley are joint bookrunners and lead managers for the transaction - three US houses in a deal that is not being sold to US investors. Officials at the three lead managers declined to comment on the transaction. Details of the expected size and tenor remain sketchy. However, market observers said that early talk of a $1bn 10 year tranche for the dollar tranche could prove right, while the euro tranche could have a size of Eu500m, with a minimum maturity of seven years. One market official familiar with the government's plans said that the finance ministry is looking opportunistically at the market and that the potential size and tenor of both tranches will depend on market conditions. Other bankers said the sovereign's decision to avoid the US investor base is due to the Chinese government not wishing to have to file with the SEC, combined with a desire to access new investors. However, others detected a different reason for the ministry's decision. "The government is probably avoiding US investors because of the political fallout from the US spy plane issue," said one banker. The PRC has been expected to access the international debt capital markets for some time. The three investment banks have held a mandate since early 2000, but the country kept delaying the launch. As the sovereign does not require the financing for budgetary purposes, one of the main reasons for an issue will be to create a benchmark purposes, and the government wants to get the most competitive spread possible, said bankers. China's last dollar bond issue, a $1bn 2008 bond, has performed well over the past few weeks, trading in to about 110bp over US Treasuries from around 140bp over a few weeks ago. "I would expect the new US dollar tranche to probably come through at about 135bp-140bp over, given the current spread of its 2008 bond issue," said one Hong Kong-based banker. "China's paper has been performing pretty strongly and there is good demand for Chinese bonds, so I would expect that the issue will go well," added another market official.
May 11, 2001
