Bank of China raises US$962 million in first Asian bond referencing Sofr
Bond is issued in tranches in US dollars, euros and CNH
Bank of China (BoC) has broken new ground in the Asian bond market, pricing the US dollar tranche of its latest transaction based on secured overnight financing rate (Sofr), one of the reference rates being considered to replace the London interbank offered rate (Libor). The bank raised a total equivalent to about US$962 million as it also accessed the euro and the CNH bond markets.
The multi-currency green offering, issued through its Macau branch, was comprised of a US$350 million floating rate note (FRN) for three years, which was priced at par with a similar coupon and re-offer spread of 95bp over Sofr. This represented the first issuance in Asia’s public bond market, whose pricing was referenced to Sofr and set a benchmark for the future Sofr bond market in the region.
This tranche generated a total demand of US$550 million from high-quality fund managers, insurance companies and private banks.
The second tranche was a CNH 2 billion (US$282 million) fixed rate note for two years. It was also priced at par with a coupon and re-offer spread of 3.15%. The issuance garnered a total order book of CNH 2.9 billion from 36 accounts, with 91% of the bonds distributed in Asia and 9% in EMEA. By type of investors, banks accounted for 49%, central banks and sovereign wealth funds 26%, and fund managers, corporates and private banks 25%.
The zero-coupon euro tranche amounting to 300 million euro (US$330 million) was priced at 48bp over mid-swap – marking the first such offering in the euro bond market from a Chinese bank. It was likewise the first two-year public bond offering from a Chinese issuer.
Sofr is an interest rate benchmark based on transactions in the Treasury repurchase market. The New York Federal Reserve started publishing the rate in April 2018 as part of an effort to replace Libor.
As Christophe Cretot, managing director and head of debt origination and advisory for Asia-Pacific at Credit Agricole, notes, the Sofr market is still at an early stage and the previous issuers are mostly US institutions and European sovereigns, quasi-sovereigns and SSAs (sovereign, supranational and agency).
He says some Japanese banks have also issued short-term money market instruments through their US branches. “This innovative deal bolsters the whole market in terms of the interest rate liberalization and moves the market forward,” he adds.
Proceeds from the offering, which was drawn from BoC’s US$40 billion medium-term note programme, will be used to finance and/or refinance the eligible green projects as defined in BoC’s green bond management statement.
The deal showcases the bank’s commitment to green strategy in the Greater Bay Area, and BoC has selected 18 projects to allocate the proceeds, including renewable energy projects such as wind and solar.
BoC, Bank of Communications, China Construction Bank (Asia), Commonwealth Bank of Australia, Credit Agricole CIB, J.P. Morgan, and UBS acted as the joint bookrunners and lead managers for the US dollar tranche, while Agricultural Bank of China (Hong Kong), BoC, China Construction Bank (Asia), China Everbright Bank (Hong Kong), Credit Agricole CIB, CTBC Bank, DBS, HSBC, J.P. Morgan, Nomura, and UBS were the joint bookrunners and lead managers for the CNH offering.
BoC, Bank of Communications, BNP Paribas, CMB International, Credit Agricole CIB, ICBC (Asia), J.P. Morgan, MUFG, and UBS were the joint bookrunners and lead managers for the euro tranche.
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14 Oct 2019