China’s Ministry of Finance ( MoF ) returned to the US dollar bond market after an absence of three years, pricing on November 13 a dual-tranche offering totalling US$2 billion in a tightly priced transaction.

The Reg S/144A issuance included a three-year bond amounting to US$1.25 billion, which was priced at a spread of just 1bp over the US treasuries. This was in line with the final price guidance and well inside the initial price guidance of 25bp area. The second tranche was for five years amounting to US$750 million, which was printed at a spread of 3bp over the US treasuries. This was also in line with the final price guidance and 27bp tighter than the initial marketing range of 30bp area.

The transaction marks not only the lowest credit spread for MoF’s US dollar bonds in recent years, but also the tightest credit spread for US dollar bonds issued by a sovereign entity year-to-date, according to David Yim, head of capital markets for Greater China and North Asia at Standard Chartered, which acted as joint bookrunner and lead manager for the transaction. “This shows that China’s sovereign credit is well acknowledged by the global capital markets even amidst a volatile environment,” he says.

China MoF last tapped the US dollar bond market in October 2021, raising a total of US$4 billion in three tranches. That deal already re-priced the sovereign’s US dollar credit curve, with the three-year bond printed at a spread of 6bp over the US treasuries, the five-year bond at 12bp and the 10-year bond at 23bp. These were well inside their initial price guidance of 35bp area, 45bp area and 55bp area, respectively.

In a departure from the tradition of issuing bonds in Hong Kong, the latest MoF sale took place in Saudi Arabia in a demonstration of strengthening financial cooperation and mutual economic benefits between China and Saudi Arabia. “This landmark deal represents another milestone in the China-Middle East relations with Middle Eastern investors subscribing to the MoF bonds for the first time,” adds Yim.

The deal attracted a combined order book of US$39.7 billion from 429 accounts. The three-year tranche generated a total demand of US$19.4 billion from 201 accounts with 69% of the bond allocated in Asia, 24% in Europe, 5% in MENA and 2% in the Americas. The five-year bond garnered total orders of over US$20.3 billion from 228 accounts with 67% of the paper distributed in Asia, 15% in Europe, 12% in MENA and 6% in the Americas.

The bond proceeds will be used by the MoF for general governmental purposes. Apart from Standard Chartered, the other bookrunners and lead managers for the transaction were Bank of China, Bank of Communications, Agricultural Bank of China, BofA Securities, China Construction Bank, China International Capital Corporation, Citi, Crédit Agricole CIB, Deutsche Bank, First Abu Dhabi Bank, Goldman Sachs, HSBC, ICBC, J.P. Morgan and Mizuho Bank.

Earlier in September this year, the China MoF also returned to the euro bond market – also after an absence of three years – printing as well a dual-tranche issuance totalling €2 billion ( US$2.10 billion ) that generated a total demand of €15.6 billion.