Testing the water
The offshore bond debut of the People’s Government of Hainan Province of the People’s Republic of China not only set the precedent of a local Chinese government using the blue label, but also paves the way for other local governments to grab opportunities in the international market.
In late October, days after the Chinese Communist Party closed its 20th Congress, which laid out policy direction for the country for the next five years, the country’s southernmost province issued its first offshore bonds. The three tranche Rmb5bn (US$690m at the time) Reg S transaction comprised a Rmb1.2bn 2.42% two-year blue tranche, a Rmb2.6bn 2.65% three-year sustainability bond and a Rmb1.2bn 2.85% five-year sustainability portion, all of which were sold at par.
Investors including overseas banks, asset management firms and funds bought into the deal, leading to 2.2 times subscription.
The blue label, the first for an offshore Chinese local government bond, set the stage for other local governments to tap this concept. Blue bonds are a type of green bond, but they give a commitment that proceeds will go toward water-related projects, something that is important for an island like Hainan.
The pairing of the blue and sustainability labels for the bond sale and alignment with international ESG standards including the International Capital Market Association and International Finance Corporation principles helped draw investors to the debut Dim Sum.
The success of Hainan’s deal was clear to its peers, as the People’s Government of Guangdong Province immediately followed with its own Rmb2bn 2.65% three-year note. The Shenzhen municipal government came soon after with a three-tranche Rmb5bn transaction that included a Rmb1.1bn 2.83% five-year blue tranche.
Beyond the ESG focus, the Hainan deal is evidence of the growing reach of local Chinese governments into international markets. It is the first offshore local government issuance outside the Greater Bay area, which is made up of Hong Kong, Macau, and nine cities in Guangdong province. Hainan has a much lower GDP than Guangdong, the wealthiest province in China, and has shown other provincial governments the potential of a Dim Sum sale.
Bank of China was the lead global coordinator, and China International Capital Corp and Bank of Communications were joint global coordinators. The three were also joint lead managers and bookrunners with ICBC International, China Construction Bank, Standard Chartered, Credit Agricole CIB, CMB Wing Lung Bank, HSBC, Shanghai Pudong Development Bank Hong Kong branch, Agricultural Bank of China Hong Kong branch, Deutsche Bank, CEB International, Mizuho, Citic Securities, Guotai Junan International and China Minsheng Banking Corp Hong Kong branch.
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