Chinese SBLC-backed offshore-bond issuance at new high in 1Q22 with LGFVs accounting for 71% of volume YTD

Data Insight DebtDynamics 27 April

Chinese SBLC-backed offshore-bond issuance at new high in 1Q22 with LGFVs accounting for 71% of volume YTD

Chinese companies’ offshore-bond issuances backed by standby letters of credit (SBLCs) have touched a record high in 1Q22 with USD 4.59bn across 45 deals, continuing the momentum since the beginning of 2021.

So far this month, Chinese issuers have printed a total of USD 738m in aggregated principal of SBLC-backed bonds across seven deals. Bond issuances with this credit enhancement have increased each quarter – both in terms of volumes and number of deals – since the beginning of 2021. A total of USD 4.05bn SBLC-backed bonds were printed across 30 deals in 4Q21; USD 2.53bn from 22 deals in 3Q21; USD 1.46bn from 14 deals in 2Q21; and USD 1.32bn from 13 deals in 1Q21.

Chinese local-government financing vehicles (LGFV) accounted for 71% of the total SBLC-backed-issuance volumes so far this year and 79% in entire 2021.

Sino-Ocean Group Holding, rated Baa3 by Moody’s and BBB- by Fitch, was the latest Chinese company to have issued such bonds. The China Life Insurance Co-backed property developer on 20 April priced USD 200m 3.8% three-year green bonds supported by an SBLC from China Zheshang Bank Beijing branch (rated BBB- by S&P and Baa3 by Moody’s). Sino-Ocean Group guarantees the bonds issued by Sino-Ocean Land Treasure IV.

The deal marked a rare case where the guarantor is rated at the same level as the SBLC provider, underscoring even better-regarded Chinese property developers’ difficulty in accessing the debt capital market. Typically, issuers are unrated or rated two-to-three notches below the SBLC provider.

With the high-yield bond market largely closed to Chinese developers, Debtwire reported on 29 March that Shanghai-based Seazen Holdings and CIFI Holdings are exploring issuing offshore notes also backed by Zheshang Bank SBLCs. Country Garden Holdings is also in talks with Zheshang Bank for a potential offshore-bond issuance backed by SBLC, Debtwire reported on 31 March. Only a handful of Chinese real-estate companies have used the SBLC route for offshore-bond issuance since the beginning of 2014.

Two other property developers have also opted for the SBLC format so far this year: Excellence Commercial Properties (unrated) for its USD 100m 2.91% due-2025 notes and Greentown China Holdings (rated BB- by S&P and Ba3 by Moody’s) for its USD 400m, 2.3% three-year green bonds. Both deals were backed by SBLCs from China Zheshang Bank via its Shenzhen and Hangzhou branches, respectively.

Zheshang Bank is actively seeking opportunities to provide SBLCs to back offshore notes issued by China developers, given the relatively high fees they generate and that developers usually have to pledge onshore assets to the bank to obtain such a credit enhancement.

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