Hong Kong Special Administrative Region on Tuesday raised US$3.4bn-equivalent from a multi-tranche bond deal in renminbi, Hong Kong dollars, US dollars and euros, the first time that the government has sold all four currencies in one transaction, and the first time it sold an infrastructure bond through bookbuilding.
The Dim Sum bonds were split between a Rmb4bn (US$556m) 2.60% 20-year green note and a Rmb4bn 2.70% 30-year infrastructure tranche.
A HK$1.5bn (US$191m) 30-year infrastructure bond was priced at par to yield 3.85%.
A US$1bn 4.125% five-year green bond was priced at 99.884 to yield 4.151%, or Treasuries plus 12bp, while a €1bn 3.125% eight-year green bond was sold at 99.791 to yield 3.155%, or mid-swaps plus 75bp.
“It shows the breadth of the local market which the Hong Kong government and other public sector entities now have access to,” said a banker on the deal. “Now it’s capable of funding a range of sizes and tenors.”
In January, Airport Authority Hong Kong sold Dim Sum and Hong Kong dollar bonds a day before a US dollar deal to tackle the fear that the hard currency tranche would take away too much investor attention from the local currency parts.
“The Hong Kong dollar market is evolving,” said another syndicate banker. “Starting from this year, it has been developing, and we’ve seen more and more international issuers coming to the market.”
Bankers said the improved liquidity and issuers seeking to diversify their funding due to volatility in US dollar rates are driving that development.
“All these issuances, from short-dated to long-dated, from high-quality, highly rated entities, show that the Hong Kong dollar market is deep enough and mature enough. I’m sure there’ll be more issuers coming,” said David Yim, head of capital markets for Greater China & North Asia at Standard Chartered.
Infrastructure label
The government established its infrastructure bond framework in September and has sold bonds through tenders since then. Financial secretary Paul Chan emphasised infrastructure projects in this year’s budget speech and said the government would consider issuing long-term bonds to support projects.
Bankers said investors welcome the infrastructure label and were comfortable with the information disclosure and framework, a better result compared to a retail deal in December that received a lukewarm response resulting in a reduced size. The label was also helpful bringing in investors with infrastructure mandates.
“A label is a way to demonstrate to the market the important strategic objectives and priorities,” said the first banker. “It’s a theme for Hong Kong to flag the work that is ongoing. It’s a positive.”
Chan said in a press release that the issuance helps to “accelerate the development of projects such as the Northern Metropolis and facilitate the early completion of projects for the good of the economy and people’s livelihood”.
The Northern Metropolis project, which includes housing, a technology park and a professional services and logistics hub, and will take up one-third of total land in the city, is described as “a new engine for the future development” and will support Hong Kong to become an international innovation and technology centre,according to the official website.
All bond tranches received strong demand with subscription rates of between three and 12.5 times. The US dollar and euro tranches priced 8bp and 2bp inside the government’s curve. Other quasi-sovereigns and AAHK were used as references for the Dim Sum and Hong Kong dollar tranches and indicated that they paid no premium.
“We received very high-quality investors and very strong demand. At the same time, the diversification of the currencies supports the market’s further development,” said a fourth banker.
The deal will be rated AA+/AA– (S&P/Fitch), in line with the government's Aa3/AA+/AA– rating.
Proceeds from the green tranches will be used to finance projects identified in the government's green bond framework, while the infrastructure tranches will be used to finance projects under the infrastructure bond framework.
Orders for the Dim Sum tranches peaked at Rmb33bn before dropping to Rmb28.8bn at reoffer. Final orders for the 20-year bond reached Rmb13.1bn from 55 accounts, including Rmb4.78bn from leads. Asia took 97% and EMEA 3%. Banks accounted for 83%, asset and fund managers and insurers 13%, central banks, official institutions and sovereign wealth funds 2%, and private banks and others 2%.
For the 30-year Dim Sum, orders reached Rmb15.7bn from 61 accounts, including Rmb4.97bn from leads. Asia made up 97% and EMEA 3%. Banks bought 67%, asset and fund managers and insurers 29%, central banks, official institutions and sovereign wealth funds 2%, and private banks and others 2%.
For the Hong Kong dollar part, orders reached HK$10.6bn from 67 accounts, including HK$2.4bn from leads. Asia bought 85% and EMEA 15%. Asset and fund managers and insurers took 68%, central banks, official institutions and sovereign wealth funds 13%, banks 14% and private banks and others 5%.
For the US dollar portion, 215 accounts put in orders reaching US$10.6bn, including US$3.155bn from leads. Asia accounted for 67%, EMEA 28% and Americas 5%. Banks made up 44%, fund and asset managers 31%, central banks, official institutions and sovereign wealth funds 19%, insurance 5% and private banks 1%.
For the euro bond, orders reached €12.4bn from 259 accounts, including €2.2bn from leads. APAC bought 48%, Europe 45%, Middle East and offshore US 7%. Banks took 43%, asset managers 26%, official institutions, sovereign wealth funds and central banks 21%, and hedge funds and others 10%.
Banks, thousands of 'em
For the Reg S Dim Sum notes, Bank of China (Hong Kong), Credit Agricole, HSBC, JP Morgan, Bank of Communications, ICBC (Asia) and Standard Chartered were joint global coordinators, and joint bookrunners and lead managers with Citigroup and Mizuho. ANZ, Barclays, Bank of America, BNP Paribas, China International Capital Corp, China Citic Bank International, Goldman Sachs, Morgan Stanley, Societe Generale and UBS were joint lead managers.
For the Reg S Hong Kong dollar bonds, Bank of China (Hong Kong), Credit Agricole, HSBC, JP Morgan and Standard Chartered were joint global coordinators, and joint bookrunners and lead managers with ANZ, Barclays, Bank of America, BNP Paribas, Citigroup, Mizuho, Bank of Communications and ICBC (Asia). Goldman Sachs, Morgan Stanley, Societe Generale and UBS were joint lead managers.
For the 144A/Reg S US dollar bonds, Bank of China (Hong Kong), Credit Agricole, HSBC, JP Morgan and Citigroup were joint global coordinators, and joint bookrunners and lead managers with Bank of America, BNP Paribas, Goldman Sachs, Mizuho, Morgan Stanley, Standard Chartered and UBS. ANZ, Barclays, Bank of Communications, ICBC (Asia) and Societe Generale were joint lead managers.
For the Reg S euro bonds, Bank of China (Hong Kong), Credit Agricole, HSBC, JP Morgan, BNP Paribas and Citigroup were joint global coordinators, and joint bookrunners and lead managers with Bank of America, Morgan Stanley, Standard Chartered and UBS. ANZ, Barclays, Bank of Communications, Deutsche Bank, Goldman Sachs, ICBC (Asia), Mizuho and Societe Generale were joint lead managers.