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China Raises $6 Billion in Dollar Bond Sale -- Update

10/15/2020 | 06:09am EST

By Frances Yoon

China raised $6 billion with its latest international bond sale, matching a record set last year, ahead of economic data that is likely to show growth is recovering toward pre-pandemic levels.

Despite heightened tensions with the U.S., this was China's first bond sale in recent years targeted partly at investors in America. U.S. buyers snapped up large chunks of the four-part deal, including 47% of a $500 million offering of 30-year debt, according to one of the banks that handled the sale.

Economic indicators like retail sales and export data show China is shaking off the effects of the coronavirus. Gross domestic product figures due Monday are likely to show growth rose to 5.3% from a year earlier in the third quarter, according to economists polled by The Wall Street Journal. That is up from 3.2% a quarter earlier and approaching the 6.1% rate for all of 2019.

China's Ministry of Finance said in a deal document the country was "exhibiting restorative growth and a steady recovery."

This month the International Monetary Fund said China, where the pandemic originated, will be the only major economy to grow this year, expanding 1.9%.

The deal drew a strong reception from institutional investors in the U.S. and elsewhere, said Samuel Fischer, head of China onshore debt capital markets at Deutsche Bank. It was aided by the IMF's upgraded forecast, a Chinese stock-market rally and improving consumption data, he said.

Central banks in the U.S. and elsewhere have cut interest rates and bought huge quantities of government debt, helping push sovereign bond yields to very low or negative levels. That in turn has boosted the appeal of even slightly higher-yielding debt sold by emerging countries.

China's four-part deal included bonds due in three, five, 10 and 30 years, according to a term sheet. The shortest-dated was priced to yield 0.25 percentage point over corresponding U.S. Treasurys, while the bond due in 2050 offered an extra yield of 0.8 percentage point.

China has solid investment-grade credit ratings, with an A+ grade from S&P Global Ratings and an equivalent A1 from Moody's Investors Service. Those ratings are in line with Japan's.

The cost of insuring China's dollar debts against default, as measured by credit default swaps, has also fallen in recent years, showing investor concerns about China's creditworthiness have waned. It now costs less than $40,000 a year to insure $10 million of Chinese debt against default for five years, Refinitiv data shows.

Asia has been one of the best-performing regions this year for investors in dollar-denominated sovereign bonds, said Alan Siow, fixed-income portfolio manager at Ninety One. Mr. Siow said this was thanks in part to the way China and its neighbors "have dealt with the economic and health impacts of Covid-19."

If the global economic recovery continues, the gap between yields on Asian sovereign bonds and Treasurys should continue to narrow, said Julio Callegari, a portfolio manager at J.P. Morgan Asset Management.

This is the fourth year in a row that China has raised billions of dollars with an autumn sale of international bonds. The new bonds were sold in both a 144a format, which allows debt to be sold to investors in the U.S., as well as under the less onerous Regulation-S framework for international debt sales.

China hasn't used the 144a format in any previous dollar-bond sale since 1996, according to Dealogic, and in recent years some Chinese companies, especially state-owned enterprises controlled by the central government, have opted to bypass U.S. investors.

China worked on the deal with 13 banks, including units of Bank of America, Citigroup, Goldman Sachs and JPMorgan, as well as banks from China, Europe and elsewhere in Asia.

HSBC Holdings PLC, which worked on China's recent dollar-bond deals from 2017 onward, wasn't given a role this year. The London- and Hong Kong-listed bank has been caught in rising tensions between the U.S. and China over trade and the status of Hong Kong.

HSBC, which has handled some recent debt deals for major state-backed Chinese groups such as State Grid Corp. of China, said it had a "good ongoing working relationship" with China's finance ministry. "As the leading foreign bank for G3 debt issuance in mainland China, HSBC is committed to supporting our clients and the opening up of China's capital markets," it said. G3 debt includes bonds in dollars, euros or yen.

Write to Frances Yoon at frances.yoon@wsj.com

(END) Dow Jones Newswires

10-15-20 0608ET

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