Yahoo Finance Chinese Bond Market Is So Hot One Firm Is Mulling a 50-Year Sale
(Bloomberg) -- Amid an unprecedented bond issuance boom as borrowing costs tumble to record lows, a state-owned Chinese firm is considering an offering of a 50-year note in what would be the nation’s longest corporate debt tenor if completed.
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Wuxi Industry Development Group Co., owned by the Wuxi city government near Shanghai, has engaged underwriters to sound out investor interest for a potential 1 billion yuan ($138 million), 50-year domestic bond sale, according to people familiar with the matter. The deal is still at an early stage and terms, including the tenor, are subject to change, the people said, requesting anonymity in discussing private matters.
If a bond with a 50-year maturity was offered and if it did wind up getting priced, that would make it the longest-tenor corporate note ever issued in China’s local market, excluding perpetual securities, data compiled by Bloomberg show.
Such an ultra-long tenor is rare in corporate markets in China and elsewhere. But local and global firms are flocking in to lock down cheap financing costs as China’s bond yields and credit spreads slide to record lows. Money managers also are directing funds into fixed-income assets, despite warnings from the central bank about a potential asset bubble.
The duration considered by Wuxi Industry is rare even in the low-rate environment in China, but more could be expected, particularly from local government financing vehicles, said Ting Meng, senior Asia credit strategist at Australia & New Zealand Banking Group Ltd.
“It would apply to LGFV bonds, given the overall guidance to solve LGFVs high debt problem is to extend its maturity with long-tenor loans and bonds,” she said, adding issuers’ credit and duration may pose risks if rates rise in the future.
Previously, a handful of China’s state-owned firms have issued 30-year corporate notes, for now the longest tenor excluding perpetuals. Wuxi Industry just priced a 1 billion yuan, 30-year local bond at 3.23% earlier this month.
The yield premium for 30-year AAA rated corporate bonds over comparable sovereign debt has narrowed to a record low of 20 basis points this week, according to Bloomberg-compiled data based on ChinaBond indexes.
Wuxi Industry, whose operations span across semiconductors, trade, and investment, declined to comment when reached by phone on Thursday. It had a profit of 1.9 billion yuan last year, according to its website.
--With assistance from Finbarr Flynn.
(Updates with analyst comment and bond issues data in sixth, seventh paragraphs)
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