Allen & Overy, Jingtian & Gongcheng, Linklaters and Fangda Partners ushered in the landmark dim sum bond issuance of Baosteel, China’s steel giant, marking the first PRC corporation to directly raise yuan debts offshore.
After gaining approval from the National Development & Reform Commission, the Chinese government’s planning agency, in October, Shanghai-headquartered Baosteel Group Corporation issued RMB 3.6 billion yuan bonds in Hong Kong on Nov. 25 which paved the way for other Chinese non-financial institutions to tap into the burgeoning offshore yuan market.
Previously, all dim sum bonds, with the exception of PRC banks and financial institutions, were issued by the offshore subsidiaries of PRC conglomerates.
The issuer engaged Allen & Overy as its lead counsel, and PRC firm Jingtian & Gongcheng for China law advisory.
Global coordinators of the transaction were Deutsche Bank and HSBC; China Merchant Securities, DBS, ICBC International Capital and Standard Chartered Bank served as the joint bookrunners. The underwriters retained Linklaters and Fangda Partners for Hong Kong and PRC laws.
Baosteel’s yuan papers were issued in three tranches which are due in two, three and five years, with yields ranging from 3.125 to 4.375 percent.
The Allen & Overy team comprised Hong Kong-based partner Walter Son, and Shanghai partner Ji Zou.
Son, the A & O partner leading this issuance, said: "This transaction paves the way for more Chinese state-owned entities to tap into the offshore Renminbi market over the coming months."
The Linklaters team was headed by William Liu, Terence Lau and Liping Heng in Hong Kong, and supported by Bryan Chan in Shanghai.
Liu, a partner of Linklaters’ capital markets practice, said: “This is the first bond issue in the offshore RMB market which gives investors direct access to high-quality PRC corporate credits on a pari passu basis with onshore creditors. In fact, this is what international investors have been seeking for years.”
Unlike many unrated and high risk yuan bonds that have surfaced in the market, Baosteel has one of the highest credit ratings among PRC corporations, garnering A3 from Moody’s, A from Standard & Poor’s, and A-minus from Fitch Ratings.
Andrew Malcolm, the head of Linklaters’ Asia capital markets practice, said: “This landmark issuance will allow a growing number of PRC corporates to issue RMB denominated paper to overseas investors without having to go through the additional hurdle of setting up an offshore originating vehicle. It is a healthy development in the range of potential structures for offshore RMB denominated paper available in the market.”
Lawyers advising on the trend-setting issuance had to tackle complex PRC legal issues such as the required registration of the bonds with China’s State Administration of Foreign Exchange after pricing, and the additional protection of a redemption right backed up by an escrow mechanism if such registration was not completed within a definite timeframe.
Baosteel plans to use the funds raised as a capital contribution for its offshore wholly-owned subsidiary Baosteel Resources (International), while leveraging the Chinese government’s new initiative that is pushing domestic companies of strategic importance to make acquisitions abroad to secure China’s reserve of natural resources. ALB
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