State Grid Issues Dual-currency Bonds Overseas

from:China Electricity Councildate:2020-09-08

State Grid raised USD1.45 billion and EUR1.6 billion through offerings of dollar and euro-denominated bonds. With the most favorable benchmark interest rates, the lowest coupon rates, the largest scale of bond issue in euro with the lowest credit spread, it set new records among Chinese businesses at the international capital markets.

The two tranches of dollar bonds, 300 million of 5 years and 1.15 billion of 10 years, were priced at 1.138% and 1.769% respectively. The euro-denominated bonds, 1 billion of 6 years and 0.6 billion of 12 years, were priced at 0.797% and 1.303% respectively. By adopting a flexible financing strategy combining bridge loans and public borrowing, the company priced the bonds by leveraging a new historic low yield of the US Treasury bonds and the negative interest rate of euro mid-term swaps. All of the 4 tranches featured a negative premium of over 15 basis points, rarely seen in the recent capital markets. The financing cost was 20-plus basis points lower than bonds of similar maturities issued by comparable central state-owned enterprises. The successful issue contributed to the smoothest yield curve with the smallest yield spread amongst Chinese enterprises. On the first trading day, the secondary market yield difference of major central SOEs decreased accordingly, laying a good foundation for future bond offerings.

For the first time, this issue used the convenient Regulation S, featuring promotion through “online roadshow plus investor conference calls”. 296 investment institutions from 29 countries and regions watched the roadshow. Over 100 investment institutions attended the conference calls. Major bond investors took active part in purchasing State Grid’s bonds. The offerings drew USD14 billion and EUR6.3 billion in bids respectively, which also took the shortest time in the company’s history. The phenominal sales highlighted the unique value of State Grid's overseas bonds and demonstrated investors' recognition of its brand and credit.

The euro-denominated bonds enabled State Grid to expand its presence in the European capital market. As European investors deepened their understanding and recognition of State Grid, subscriptions of the bonds from European investors has increased from 30% in the past to over 50% this time. With the longest maturity and the largest size of bonds issued by a Chinese company in the euro market, the offerings helped State Grid better structure the duration portfolio of its overseas financing, enrich the portfolio with the 10-year dollar and 12-year euro tranches, increase the share of long-term financing to a record high of 56%, and fuel its development through low-cost capital and reduced liquidity risks.

As the issue concluded with success, State Grid gained more experience in overseas bond markets, consolidated its model of promoting international projects and tapping overseas capital, enhanced its ability to obtain low-cost funds from foreign countries, and further sustained the profitabilities of its overseas projects.

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