Tianjin FTZ launched a debut international bond on Tuesday, attracting an outsized order book for a slightly larger-than-expected $500 million deal.
Bankers said the peak order book hit $4.5 billion before dropping back slightly to $4 billion after the group revised priced guidance fairly aggressively.
They added that the deal was particularly well received because the issuer is not only viewed as one of the most important local government financing vehicles (LGFV) in China but also has a compelling story as the north's only Free Trade Zone.
The Baa2/BBB+ rated three-year Reg S deal was initially marketed at 290bp over Treasuries before guidance was revised to 2.5bp either side of 260bp over Treasuries.
Bankers added that the transaction got off to a good start as it had already locked in $400 million of anchor demand following a five-day roadshow. The book quickly rose to $1 billion within an hour of launch and had hit $2.5 billion by the beginning of the Asian afternoon.
This encouraged the group to push down on pricing, with final terms fixed at an issue price of 99.536% and coupon of 3.625% to yield 3.79% or 257.5bp over Treasuries. Syndicate bankers estimated fair value around the 250bp level, which means the deal offers a 7.5bp new issue premium.
The issuance vehicle was Hong Kong Baorong Development Ltd, with a keepwell and liquidity support deed provided by Tianjin FTZ Investment Holding Group. The absence of a full guarantee led Moody's to drop the rating one notch below the parent's Baa1 rating, while S&P maintained both issuer and parent at BBB+.
Moody's also rates Tianjin FTZ's deal one notch lower than its chief comparable, a $300 million 3.1% July 2018 deal by Zhaohai Investments, which has a keepwell deed and liquidity support from Binhai Jiantou Hong Kong Development. S&P rates them both at the same level.
Both companies ultimately come under the ownership of the Tianjin municipal government via Tianjin Sasac and there is a put option at 101% if ownership falls below 100%. In Tianjin FTZ's case, this very strong implicit support resulted in a six-notch uplift from Moody's B1 baseline assessment.
Tianjin FTZ launched a debut international bond on Tuesday, attracting an outsized order book for a slightly larger-than-expected $500 million deal.
