The Portuguese Republic made a commanding debut in the Chinese market with a Rmb2bn (US$284m) three-year Panda bond, attracting a strong order book as the first eurozone sovereign and only the third European sovereign to sell bonds in China.
Portugal, rated Baa3/BBB/BBB by the three major global rating agencies and AAA by China Lianhe, priced the three-year issue at 4.09%.
Amid market volatility during the execution week, healthy demand enabled Portugal to price the transaction closer to the lower end of the initial guidance range of 3.9%–4.5%, after revising pricing tighter three times.
The final pricing was impressively tight considering the ratings and came only 74bp over the China Development Bank benchmark.
The deal, the first off Portugal’s Rmb5bn Panda bond programme, had been in the pipeline for more than two years. It finally came on May 30, when market conditions were far from perfect. Despite heightening tensions in the Sino-US trade war, it found strong demand, in particular from offshore investors.
The Bond Connect scheme, which allows foreign investors to place orders in China’s interbank market from Hong Kong, helped the issuer reach a broader buyer base. Comprehensive non-deal roadshows in Beijing, Shanghai and Singapore helped draw offshore orders, and the response from overseas buyers exceeded bookrunners’ expectations.
Chinese mainland investors took 48.5% of the bonds, while offshore investors took a healthy 51.5%.
The offering was 3.165 times oversubscribed, based on final orders.
The issue strengthened Portugal’s trade ties with China, coming after it signed an agreement to join the Belt and Road Initiative in late 2018 and earlier joined the supranational Asian Infrastructure Investment Bank as a founding member.
Chinese investments in Portugal exceeded €9bn (US$10bn) by the end of 2018, according to government data, making China the fifth largest foreign investor in the country.
The debut issue gave Portugal a significant presence in the Chinese capital market and could help pave the way for corporate issuers in Portugal who might have demand for financing in renminbi.
The strong response from domestic and foreign investors is expected to attract other European sovereign issuers to tap the world’s second-largest bond market. Only Poland and Hungary had sold Panda bonds before Portugal, and a deal from Austria remains on the cards.
Bank of China was the lead bookrunner and joint lead underwriter, and HSBC was the joint lead underwriter and joint bookrunner.