CHINA'S long-awaited Yankee bond has been priced at the higher end of market expectations as Beijing successfully locked in US$100 million in 100-year funding and another US$300 million through a seven-year bond. China follows Malaysian national electric utility Tenaga Nasional into 100-year funding. Tenaga has raised US$150 million through a Yankee bond arranged by Lehman Brothers, which says the issue is the first 'century' deal from a non-US borrower. The issue was increased from an original target of US$100 million. It closed on January 16. China's Yankee - a US dollar-denominated bond issued in the United States by a non-US investor - was arranged by J.P. Morgan Securities and Merrill Lynch and co-lead-managed by C.S. First Boston and Morgan Stanley & Co. China ended up paying a semi-annual coupon of 9 per cent for the 100-year bond. The spread at launch was 299 basis points (2.99 percentage points) over the Treasury bond due 2025. It was tipped to pay between 275 basis points and 300 basis points over Treasuries to get the 100-year bond away. Merrill Lynch said both the 100-year and seven-year bonds were rated A3 by Moody's Investors Service and BBB by Standard & Poor's (S&P). The 100-year bond, believed to be a first from a sovereign, was priced to yield 9.125 per cent, and carried no put or call options. China also raised US$300 million in bonds maturing January 15, 2003, and carrying a 6.625 per cent semi-annual coupon. This bond went at a spread of 113 basis points over US treasuries. Bankers in Hong Kong had earlier expected China to issue 10-year debt securities in the US. It had earlier rejected the idea of issuing in Hong Kong because local fixed-rate investors were wary of longer-term debt in Hong Kong. China was encouraged to look at the Yankee market since the success of the Mass Transit Railway Corp's (MTRC) US$300 million 10-year bond last year. The MTRC deal was increased from US$250 million to meet market appetite, with bankers saying US investors liked the idea of gaining exposure both to Hong Kong and to China risk. China had issued US$1 billion in global bonds in February 1994 through Merrill Lynch, but the deal went at just 85 basis points over Treasuries, attracting some criticism for being too low. In contrast, the MTRC Yankee last October carried a higher rating from S & P and Moody's, and was priced at 113 basis points over Treasuries. Colin Blackwell, head of debt syndicate Asia for Merrill Lynch, said the reaction had been favourable and the issue had found favour with investors chasing yield. 'Now the sovereign [credit] has come, it'll open the door for other entities to come to the international markets,' Mr Blackwell said. Extremely long-term bond issues in the US tend to come from US corporates, Mr Blackwell said. He said that News America Corp had issued century bonds recently. Bankers have been predicting a move towards international bond issues by Asian issuers, partly as a result of the squeeze on funds faced by Japanese banks, which may force loan costs up, and make bond issues more attractive as a source of funds. The Tenaga century deal was priced to yield 7.644 per cent, offering a spread over Treasuries of 142 basis points, and was rated A1 by Moody's Investors Service and A-plus by Standard & Poor's. It was Tenaga's second debt offering through Lehman Brothers. In 1994, Lehman led a successful US$600 million 10-year Yankee bond for Tenaga Nasional. Paul Shang, managing director and head of investment banking at Lehman Brothers Asia, said Lehman Brothers had raised more US dollar-denominated funds for Asian borrowers than any other investment bank. 'The Tenaga issue has undoubtedly set the benchmark for subsequent century bond offerings by Asian borrowers,' Mr Shang said. A variety of borrowers have tapped the long-term market recently, Lehman Brothers said.
