China's record 5b euro bond sale draws nearly five times in investor orders

China's Ministry of Finance issued sovereign bonds totaling 5 billion euros ($5.7 billion) in Luxembourg on Thursday on behalf of the central government, marking the largest euro-denominated bond issuance by the ministry to date, as well as the largest such issuance ever by an Asian sovereign issuer.

This bond issuance consists of three maturity options: a 5-year tranche of 2.5 billion euros, an 8-year tranche of 1.5 billion euros, and a 12-year tranche of 1 billion euros. The coupon rates are 2.768 percent for the 5-year tranche, 2.966 percent for the 8-year tranche, and 3.212 percent for the 12-year tranche.

Despite recent market volatility, the issuance was warmly received by the market, with international investors subscribing enthusiastically. Total subscriptions amounted to 24.8 billion euros, nearly five times the offering amount.

The issuance attracted a highly diversified group of global investors, including banks, sovereign wealth funds, pension funds and dealers. Notably, investors from outside Asia accounted for 49 percent of the total, fully demonstrating international investors' firm confidence in the Chinese market.

"The robust market demand reflects international investors' confidence in China's sovereign credit and long-term economic prospects. We believe this issuance will further deepen China-Europe cooperation in cross-border investment and risk management, strengthening China's influence in the international euro financial market," Tim Huang, head of global corporate banking for China at JP Morgan, said.

JP Morgan served as a joint lead manager and a bookrunner for this transaction.

Following the ministry's issuance of offshore RMB green sovereign bonds in Hong Kong in May, this new move in Europe's offshore capital market continues to signal China's commitment to financial openness. The offering strengthens connections with eurozone institutional investors and enhances China's euro sovereign bond pricing system, which will provide valuable benchmarks for Chinese corporates seeking euro financing, Huang said.

Deutsche Bank served as a joint bookrunner and a joint lead underwriter for this offering, which marks the bank's 13th consecutive mandate from the ministry since 2017.

Samuel Fischer, head of China onshore debt capital markets at Deutsche Bank, said, "We are honored to support China's Ministry of Finance on this record-breaking transaction. Securing the largest-ever EUR issuance for an Asian sovereign at the tightest-ever spreads, especially in a challenging market, is reflective of the issuer's global standing. This mandate underscores our deep partnership with the ministry and our commitment to connecting China with international capital markets, complementing our leadership as a top-ranked foreign bank for bond underwriting onshore."

Standard Chartered served as a joint lead manager, a joint bookrunner, and a settlement and delivery bank for this issuance. Jerry Zhang, Standard Chartered's global head of RMB commercialization and global head of banks and broker dealers at Standard Chartered, said, "China's Ministry of Finance's successful issuance of euro-denominated sovereign bonds in Luxembourg, which received enthusiastic oversubscription from global institutional investors, fully demonstrates the international capital markets' high recognition of and firm confidence in China's sovereign creditworthiness, the resilience of the Chinese economy, and its long-term development prospects. It also confirms the core allocation value of Chinese sovereign assets within the global portfolio of low-volatility, stable-yield assets."

This issuance has further refined the yield curve for Chinese euro-denominated sovereign bonds, establishing an authoritative and fair pricing benchmark for Chinese institutions and enterprises seeking euro-denominated financing. It is expected to continue reducing the cost of diversified overseas financing for various Chinese issuers, Zhang said.

She emphasized that the ministry's regular access to Europe's core capital markets has further facilitated the two-way flow of capital between China and Europe, marking a significant milestone in China's high-level opening-up of its financial sector.

Citi served as a joint bookrunner and a joint manager for this issuance. Zhang Wenjie, CEO of Citi China and president of Citibank (China) Co Ltd, said, "China's MOF has successfully issued sovereign bonds in international markets on multiple occasions in recent years, fully demonstrating the international market's high recognition of and confidence in China's sovereign creditworthiness."

As one of the international banks with the longest history of operations in China, Citi is deeply honored to participate in this effort. The bank remains committed to fostering connectivity between China and global investors and supporting the high-quality, sustainable development of China's financial markets, Zhang said.