China returned to the euro bond market after an absence of 15 years with a blowout deal, pricing on November 5 a multi-tranche offering totaling four billion euros (US$4.44 billion).

The Reg S transaction, issued through the Chinese Ministry of Finance (MoF), comprised seven-year bonds amounting to two billion euros for seven years. They were priced at 99.500% with a coupon of 0.125% to offer a yield of 0.195%. This was equivalent to a spread of 30bp over mid-swap, compared with the initial price guidance of between 45bp and 50bp.

The second tranche was for one billion euros for 12 years and was priced at 98.639% with a coupon of 0.50% to offer a yield of 0.618%. This represented a spread of 40bp over mid-swap, against the initial price guidance of between 60-65bp. The final tranche was for one billion euros for 20 years and was priced at 98.603% with a coupon of 1% to offer a yield of 1.078%. This was equivalent to a tighter spread of 58bp over mid-swap, compared with the initial price range of between 75bp and 80bp.

“The transaction is truly a milestone, setting a benchmark for Chinese issuers in the euro market,” says Samuel Fisher, head of China onshore debt capital markets at Deutsche Bank, one of the joint bookrunners and lead managers for the transaction. “We have seen an increasing interest among Chinese corporations in tapping the euro market, given their growing presence in Europe, across investment grade and high yield. The market offers very low interest rates and an unrivaled institutional investor base for long-dated transactions.”

This was the third sovereign bond printed by China’s MoF since it returned to the international bond market in October 2017 with a dual-tranche US$2 billion deal – equally split at US$1 billion each – that generated a huge demand of about US$22 billion. It was followed by another US dollar issuance in October 2018 with a bigger transaction of US$3 billion that included a 30-year tranche – thus pushing out its credit curve.

The latest issuance garnered close to 20 billion euros worth of demand, with the seven-year tranche attracting 9.25 billion euros, 12-year 6.25 billion euros, and 20-year four billion euros.

“The MoF transaction attracted not only dedicated emerging market investors, but also European continental pension funds and insurance names, which are welcoming new issues in the market,” notes Fischer. “This demonstrates the depth of market demand for quality Asian issuers. The MoF sent a message with this large and successful deal, leading the way for more Chinese issuers to access the euro markets and connecting the capital markets of Europe and China.”

Another banker adds: “With the China-US trade tension, there is a sense that China needs to diversify their funding channels, not so much for MoF, but to bring the other Chinese state-owned enterprises to other markets in order not to be beholden to the US investor base.”

Net proceeds from the deal will be used by the MoF for general governmental purposes. In addition to Deutsche Bank, the other joint bookrunners and lead managers were Bank of China, Bank of Communications, China International Capital Corporation, Bank of America Securities, Citi, Commerzbank, Credit Agricole CIB, HSBC, Societe Generale, Standard Chartered, and UBS.