BoC preps London capital markets push

4 min read

Bank of China’s three-year Green structured covered bond, which celebrated its listing last Friday in a ceremony at the London Stock Exchange, was certainly eye-catching.

For all of its structural novelty, however, the deal was not primarily a funding-driven event. It was put together as much to raise the profile of China’s green credentials and the government’s continuing commitment to sustainable finance. It also showcased Bank of China and specifically its capital markets and trading expansion in London.

The US$500m three-year notes, issued under the London branch’s US$5bn covered note programme, are secured on a portfolio of renminbi-denominated climate-aligned bonds issued by Chinese borrowers and held by Bank of China. As such, the deal lays claim to being the first international offering by a Chinese entity secured by onshore assets. The notes’ covered bond-like nature lies in their dual-recourse: first to BoC London Branch but also to the underlying dynamic collateral pool, which was heavily over-collateralised at the outset but benefits too from quarterly top-ups.

Net proceeds of the deal, which was 1.8x subscribed, will be allocated to renewable energy, pollution prevention, clean transportation and sustainable water management projects.

Active expansion

BoC has been actively expanding its network in Europe and now has subsidiaries and/or what it calls Tier One branches in London, Frankfurt, Luxembourg (with offshoots in Brussels, Rotterdam, Warsaw, Stockholm and Lisbon), Budapest (Vienna and Prague offshoots) and Moscow, with other European locations having smaller branches or representative offices.

Senior management in the focus centres operate with a fair degree of autonomy. This helps the bank achieve broad reach into local catchment areas for trade finance and lending. To give its push into debt capital markets some solid grounding and cohesion, BoC has gone for a regional approach and has established an underwriting centre and a trading centre in London, which each cover EMEA and the Americas.

Jas Sandher, head of DCM, has been at the bank planning the expansion since 2013. Ian Claisse, a veteran trader with over 30 years’ experience in the market, joined in September 2016 to run the trading centre as head of fixed-income trading covering FX, rates, commodities and credit. While local currency money-market requirements will tend to remain with the branches, the London trading centre will cover all other needs.

The essence of the bank’s European DCM push is pretty simple. It will seek much more assertively to monetise its European lending relationships with capital markets and related business; it will continue to compete for senior roles on euro-denominated deals for Chinese issuers; and it will seek to create investment opportunities to sate the wall of Chinese money expected to start looking for cross-border situations.

The origination push will be focused on the corporates that BoC already banks. Its UK client pool, for example, already covers 80% of the FTSE 100 and around 60% of the FTSE 250. In recent weeks, the bank has been a joint bookrunner on WPP’s £400m sterling trade and on Gazprom’s €1bn seven-year bond. In local currency, it was sole underwriter on Hungary’s Rmb1bn sovereign Dim Sum bond earlier this year (the Budapest hub was a fillip to landing the deal) and a joint lead on Veolia Environnement’s Rmb1bn Panda bond.

The bank has a relatively conservative and risk-averse approach, so management is likely to be careful not to expand too quickly. In this regard, revenue targets are unlikely to be overly aggressive in the expansion phase.

The origination and syndication team in London currently numbers no more than half a dozen or so but market chatter suggests this could rise to around 10 in a few months and as high as 25-30 as the expansion effort reaches its zenith. The bank is expected to hire predominantly on the origination side to get the client piece moving but in syndicate, too, in support of recently-hired syndicate manager Kenny Madill.

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