China state-controlled enterprise entity Greenland Holding Group Company on June 25 priced a dual-tranche bond offering totaling US$1 billion, representing the first bond issued under the revised cross-border guarantee policy from China’s State Administration of Foreign Exchange (SAFE).

The Reg S deal comprised of a five-year tranche amounting to US$400 million, which was priced at 99.530% with a coupon of 4.375% to offer a yield of 4.481%. This was equivalent to a spread of 285bp over the US treasuries, which was in line with the final price guidance, and 15bp inside the initial guidance of 300bp area.

The remaining US$600 million was for 10 years, which was priced at 99.441% with a coupon of 5.875% to offer a yield of 5.950%. This represented a spread of 341.2bp over the US treasuries, also in line with the final price guidance and 8.8bp tighter than the initial guidance of 350bp area.

Issued through Greenland Global Investment, the bonds are guaranteed by Greenland Holding, and the proceeds will be used to fund investment in offshore projects. The group has projects in various countries, including the US, UK, Korea and Australia primarily related to property development.

The five-year bonds were trading about 2bp wider in the secondary market in late morning of June 26, while the 10-year paper was trading slightly tighter. What was clear, though, was that the issuer managed to achieve significant cost savings with the guarantee extended by Greenland Holding.

Greenland Holding, through Greenland Hong Kong Holdings, tapped the US dollar bond market in October 2013 for US$700 million for three years, paying a coupon of 4.75%. The former granted a keepwell deed and a deed of equity interest purchase undertaking to ensure that Greenland Hong Kong has sufficient assets and liquidity to meet its debt obligations. That issue was rated Ba1 by Moody’s Investor Service, BB+ by Standard & Poor’s and BBB- by Fitch.

The latest deal is an opportunity for Greenland to re-position itself as an investment grade credit, according to a banker familiar with the transaction. The arrangers took them on a roadshow to Hong Kong and Singapore on June 23 and June 24, and following strong investors’ response, they were able to announce the deal on June 25.

The order book built well during the course of the day, reaching US$4 billion, which allowed for a downward revision in the price guidance from 300bp area over the US treasuries to 285bp for the five-year bonds and from 350bp area to 341.2bp for the 10-year bonds.

In terms of comparables, one of the references is Poly Real Estate, which is also a public sector-owned China real estate developer. Poly is ultimately owned by the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council, while Greenland is owned by the Shanghai SASAC.

Poly’s 2019 bonds were trading at 290bp over the US treasuries, which was a G-spread of 294bp at the close on June 25, so Greenland managed to price 9bp inside of Poly. On the other hand, Greenland’s outstanding 2016 bonds were quoted at 100.75, or equivalent to a yield of 4.40%. Extending the curve for a new five-year, the yield will come to at least a high 5%, if not 6%, thus reflecting a significant cost saving of over 100bp for Greenland.

SAFE new policy

The five-year bonds generated an order book of US$1.6 billion from 124 accounts with 82% of the bonds sold in Asia and 18% in Europe, the Middle East and Africa (EMEA) as well as in other jurisdictions. By type of investors, fund and asset managers bought 45%, private banks 24%, banks 19%, and insurance companies and sovereign wealth funds 12%.

The 10-year tranche attracted a bigger demand at about US$2.4 billion from 143 accounts with 79% of the paper allocated in Asia, and 21% in EMEA and other countries. Fund and asset managers were likewise the biggest buyers with 49%, followed by insurance companies and sovereign wealth funds with 23%, private banks 16% and banks 12%.

BOC International, HSBC and J.P. Morgan were the joint global coordinators for the transaction, as well as joint bookrunners, along with Deutsche Bank.

Moody’s, which assigned a Baa3 rating to the bonds, explains that SAFE’s new policy, which is part of China’s effort to loosen its capital controls, allows onshore companies to register cross-border payment guarantee with SAFE rather than seeking its approval. SAFE, it notes, rarely approved offshore funding through a guarantee structure under its previous policy.

Under the new policy, SAFE will review the cross-border guarantee during the registration process. It can reject registered guarantees if it finds problems with their authenticity, commercial reasonability or compliance with regulations. SAFE can also impose penalties for breaches of the cross-border guarantee policy, Moody’s adds.

On July 31, Greenland Hong Kong returned to the US dollar bond market with another US$500 million offering, this time with a keepwell deed and a deed of equity interest purchase undertaking from Greenland Holding.

The Reg S three-year deal, which was priced at 99.307% with a coupon of 4.375%, was drawn from the company’s newly-established US$2 billion medium-term note programme.

Credit Suisse and HSBC acted as the joint global coordinators for the transaction, as well as joint bookrunners along with BOC International, J.P. Morgan and Morgan Stanley.