European investors favor China's sovereign dollar bonds

LONDON - Sale of China's first US dollar-denominated sovereign bond in 13 years gained 11 times of offering size, while orders showed the interest for Chinese sovereign debt from European investors has come from strength to strength.

China has successfully launched $2 billion worth of dollar-denominated sovereign bonds in the Hong Kong Special Administrative Region on Thursday, including $1 billion of five-year bonds and $1 billion of ten-year bonds, which attracted a wide range of global investors.

One British investor said on the Wednesday investor call that his company was "very interested" in the China Ministry of Finance deal after hearing about the news.

According to Bank of China London Branch, including central banks, sovereign funds, public sector investors, insurers and global fund managers across Asia, Europe, Middle East and Africa were involved in the deal outside the Chinese players.

With strong demand, the five-year bonds were priced to yield 2.196 percent, and the 10-year bonds were priced 2.687 percent, priced at US Treasuries notes plus 15bp and 25bp respectively, and received $22 billion in orders.

Jaswinder Sandher, head of Debt Capital Markets for the Europe, Middle East and Africa region at Bank of China London Branch, said "after a 13 year absence from the international USD markets, this stunning transaction brought demand from all parts of the world. The credit quality and economic significance of China was endorsed by investors with hard cash at a very tight spread."

He emphasized that with over 300 accounts involved in putting orders into the transaction in each tranche, the distribution of approximately one-third into Europe shows the strong following for Chinese assets in the region.

He believed this is a landmark transaction which has had positive benefits for all outstanding bonds issued by Chinese entities.

"By providing a sovereign benchmark this transaction will encourage greater asset allocation and cheaper pricing for all Chinese debt assets," Sandher said.

Bank of China is the joint lead manager and joint bookrunner for the deal. It also acted as a global coordinator for a 3 billion yuan renminbi-denominated offshore government bond issued in London last year.

This is China's first bond in dollars for more than a decade. The previous such sales were made in October 2004, when the country raised a total of $1.7 billion by issuing dollar- and euro-denominated bonds with maturities of five and ten years.