Chexim's bond offers fine yield at fair price

PUBLISHED : Tuesday, 12 July, 2005, 12:00am
UPDATED : Tuesday, 12 July, 2005, 12:00am

A hearty appetite for yield should guarantee strong demand for China's first quasi-sovereign debt issue this year, analysts say.

Export-Import Bank of China (Chexim) is marketing 10-year US-dollar-denominated bonds to investors at a spread of 87 to 92 basis points over the equivalent US Treasury, a price observers call 'fair'.

'It sounds fine as it offers some yield pickup over the existing curve, although I don't think it offers too much tightening opportunity,' one trader said.

'There is a natural demand for Chinese paper, and as a quasi-sovereign it may also benefit from being considered a safe haven,' said Ben Yuen, head of fixed income Asia at First State Investments, referring to the widening of Asian credit spreads in the immediate aftermath of last week's terrorist attacks in London.

Since then, the market has been stable as investors quickly saw value at the wider levels and moved in to buy.

The policy bank, established in 1994 as a financing channel for Chinese exports, overseas construction contracts and offshore investments, has yet to announce the size of its offering. Sources said it was being referred to as 'benchmark size', which most observers take to be about US$1 billion.

Joint arrangers BNP Paribas, Citigroup, HSBC and Merrill Lynch declined to comment.

Further details are expected within the next few days as the roadshow wraps up. The marketing teams, which began their efforts in Singapore and Hong Kong last week, will be in Boston and Paris today and finish up in New York and Frankfurt tomorrow. Pricing is due shortly thereafter.

In July last year, Chexim raised US$750 million through a 10-year bond maturing in 2014. This was re-opened in late August to seize on a recovery in the debt market at the time, tapping the market for a further US$250 million. Both issues were priced at a spread of 93 basis points over US Treasuries.

The 2014 bond was quoted at a yield of 4.84 per cent yesterday after widening from 4.78 per cent on Friday, Bloomberg Data shows. That equals a spread over the 2014 Treasuries of about 70 basis points.

Calyon's head of Asian credit research, Dilip Parameswaran, expects the Chexim bond to 'sail through' the market as investors are looking for higher returns.

'Treasury yields are still too low and every time they go up somebody is there to buy,' he said. Aside from a few individual names, speculative-grade bonds had continued to outperform investment-grade paper even in the wake of the Ford and General Motors-inspired sell-off in April, he added.

Chexim is rated BBB plus by Standard & Poor's Ratings Service and A2 by Moody's, both low-end investment grade ratings.

Chexim is expected to be followed to the international debt markets by China Development Bank. The latter had sent requests for proposals to investment banks but had yet to mandate underwriters or decide on size or maturity, banking sources said.