Strong demand greets China eurobond issue
SHEEL KOHLI in London
China's first sovereign deutschemark note issue in 10 years met strong demand yesterday, after pricing for the long-expected deal was announced.
Initial spreads of 55 basis points above five-year German government bonds, or bunds, immediately tightened to 53 basis points, syndicate officials said.
The eurobond issue, which will raise 500 million marks (about HK$2.23 billion), was awarded a 5 per cent coupon, on a fixed year offer price of 99.659.
Joint underwriter Credit Suisse First Boston (CSFB) said the deal was well oversubscribed, and set a benchmark for Chinese issues ahead of the planned European single currency.
CSFB director John Fleming said: 'The deutschemark market continues to be the best market in Europe to access an international investor base. It is the broadest market in Europe.' Other syndicate managers also reported strong demand.
'It's been quite positive. It's been set at a good price for the rating,' Alessandro Tomasi, at Union Bank of Switzerland, said. The issue is China's first since its credit rating was upgraded to BBB+ by Standard & Poor's. China is rated A3 by Moody's Investors Service.
Investors said there was still strong demand for emerging market debt, despite an expected increase over the next few months.
Andrew King, investment manager at Lombard Odier Portfolio Managers, said he expected near-term tightening of the issue.
'It could go to the mid-40s,' he said, adding that it was unlikely to go any lower.
Low US interest rates have increased investor appetite for higher yielding emerging market debt, coinciding with increased confidence by sovereign issuers.
Mr King said several countries had initiated buy-back programmes of their Brady bonds, restructuring them, and issuing non-Brady paper at a lower rate.
Yesterday, Russia saw sufficient demand to double the amount it planned to raise for its third eurobond issue to US$2 billion, priced at 375 basis points above 10-year US Treasuries.
Mexico also launched its own $1 billion sovereign debt offering last night, priced at 140 basis points above the London interbank offered rate.