Kazakhstan sovereign wealth fund Samruk-Kazyna has become the first Central Asian issuer and first sovereign wealth fund to issue Panda bonds, pricing a Rmb3bn (US$439m) three-year issue at 2.18%, towards the lower end of guidance of 2.10%–2.60%.
It took the issuer a year to prepare the deal and lay the groundwork with regulators and investors. A banker on the deal said it took some time to explain to the Chinese regulator the differences between the way Kazakh and Chinese laws treat state-owned companies.
“We would like to establish our footprint in the onshore market,” Nurlan Zhakupov, CEO of Samruk-Kazyna, told IFR Asia in February.
He said a Dim Sum deal could follow, subject to market conditions and investor demand. “We’re not interested in executing a one-off transaction,” he said.
Alex Shupletsov, head of emerging markets coverage at TF International Securities, said issuers from the Commonwealth of Independent States are gradually building up a renminbi yield curve that will help issuers from the region tap the market. He said the Dim Sum and Panda markets offer a good funding channel for issuers that need to diversify their funding and investor base.
Last year, KazMunayGas sold a debut Rmb1.25bn 2.95% five-year Dim Sum bond issue and Development Bank of Kazakhstan issued Rmb2bn of 3.35% Dim Sum bonds.
Samruk-Kazyna (Baa1/BBB–/ BBB) holds a number of state-owned companies in oil and gas, mining and transport, including KazMunayGas.
The sovereign fund held a four-day roadshow in Beijing and Shanghai. Although Kazakhstan has formed partnerships with China for many infrastructure projects, investors had limited knowledge of the country and the Central Asia region.
"During roadshows, investors gradually understood the country, the sovereign wealth fund's structure and the state-owned companies in the country," said a second banker on the deal.
Some investors were confused about whether to treat Samruk-Kazyna as a sovereign or as a corporate, based on the SOEs it holds. Bankers said after the roadshows that most investors viewed it as a sovereign credit, even though the Panda bond issue has no government guarantee.
The issuer still paid some premium, which the second banker estimated to be 20bp over bonds from the ministry of finance, which is also planning to issue Panda bonds, according to bankers.
The issuer said the Middle East conflict has no impact on its portfolio companies in the oil industry. The sovereign fund drew good demand and the deal was 1.74 times covered, attracting investors including banks, asset managers and securities houses.
Final pricing was equivalent to a spread of 59bp over China Development Bank's benchmark bonds, inside the initial target of 60bp–100bp.
Hungary, rated Baa2/BBB–/BBB, and Sharjah, rated Ba1/BBB– (Moody's/S&P), were used as references, whose Panda deals were priced at about 70bp and 110bp over CDB, respectively.
Samruk-Kazyna's deal added to the busy Panda bond market in the first quarter when issuance was Rmb49.5bn, double the volume from a year earlier, according to LSEG data.
Bankers said the market benefited from a recently accelerated approval process, with many deals in preparation last year, as well as investors' need to deploy cash.
A second banker on the deal said China's push for its Belt & Road Initiative and renminbi internationalisation also contributed to demand.
"A lot of participants don't have credit lines to those issuers, so they are very active in joining the roadshows to understand the credits, in the hope that they can become underwriters next time by committing to the first trade," he said. "As an underwriter, you're contributing more to the renminbi internationalisation policy."
Bank of China was lead underwriter and bookrunner, with China International Capital Corp, China Construction Bank and Deutsche Bank (China) as joint lead underwriters and joint bookrunners.