The road looked pretty clear when Merrill Lynch and Salomon Smith Barney set out a couple of weeks ago to market China Development Bank's (CDB) US$500 million global 10-year bond. Asian bonds and equities were rallying, interest rates were low and falling and the Japanese yen was enjoying an unusually stable run. Participants on the cross-continent marketing trip said investors were more interested in the outlook for the mainland economy than raking over the coals of the once-shocking collapse of Guangdong International Trust and Investment Corp (Gitic). They laughed at the light jokes made by CDB governor Chen Yuan, a long-time banker. 'He's a banker, not a politician, he really knows his product,' Merrill Lynch Asian debt origination head Samuel Poon said. 'And he's got a great sense of humour.' Then the bomb dropped, literally. The Nato air strike - that took out the Chinese embassy in Belgrade just as the CDB roadshow was reaching the United States - would soon become the object of massive country-wide protests in the mainland. 'Nothing's ever easy,' Mr Poon's colleague Richard Stoddard said. 'We thought we only had to deal with Gitic.' In the end, despite cancellations of sensitive trade talks and the brief threat of foreign business pull-outs from the mainland, the bombing and its aftermath scarcely affected the deal. The books closed on Tuesday reportedly more than two times oversubscribed, the price only slightly affected by the brewing crisis. The mainland's largest policy bank became the first non-sovereign bond issuer since Gitic's fall. The spread came in at 275 over comparable treasuries, for a coupon of 8.25 per cent. 'We did not lose one single order,' Mr Poon said. Mr Stoddard said: 'Some borderline people [still considering the deal] might have said no - but we didn't need them.' Market players said the outcome showed investors were less skittish over Asia's developing markets, less easily thrown off track. Morgan Stanley Dean Witter's fixed-income sales head Victor Garber said the bombing could have scuppered a deal not so long ago. 'I think under normal circumstances you'd be worried you couldn't do the deal at all. It shows a strong interest,' he said. The policy bank is owned by the central government but there is no direct government guarantee of its paper. Thus the bonds are rated one notch below the mainland's sovereign rating. 'They've already widened 20 basis points, which is quite a strong showing, in fact borderline too strong,' Mr Garber said. 'You have to draw the conclusion that things were not overly impacted by the news events [of a bombing].' That contrasts sharply with one of the previous big deals Merrill did this year, a $750 million global bond for Hong Kong's Mass Transit Railway Corp in late January. In mid-January, just before Merrill and co-arranger Goldman Sachs set out on the roadshow for the issue, Brazil devalued its currency. The move hit emerging market bonds, including Asia's. Mr Poon said: 'Emerging market spreads initially widened but had tightened again as we began the roadshow. But then the press began talking about a yuan devaluation. It hurt the book-building.' The roadshow was cut short but in the end the issue was oversubscribed, which critics of the deal attributed to overly cheap pricing. Merrill and Goldman said the pricing compared well to the spreads of other Hong Kong and mainland sovereign-equivalent paper. Mr Stoddard said: 'In January, Russia's blow-up [in August last year] was still very much on people's minds.' Since then volumes have rallied in equities and bond markets as the world's investors re-allocate assets to Asia on expectations of a turnaround within the next two years. 'Today, there's a lot more liquidity than there was in January,' Mr Stoddard said. 'A crisis doesn't have to derail a deal.'
