[lbo-talk] FT: Investors flock to China's euro tranche

[Seth Ackerman]

There are probably good financial reasons for China to do this, but maybe
also good political reasons. A warning to Washington?

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        Financial Times (London, England)

                            October 22, 2004 Friday
                                London Edition 1

SECTION: COMPANIES ASIA-PACIFIC; Pg. 28

LENGTH: 403 words

HEADLINE:  Investors flock to China's euro tranche INTERNATIONAL BONDS:

BYLINE: By FRANCESCO GUERRERA and ENID TSUI

DATELINE: HONG KONG

BODY:

European investors have flocked to the Euros 1bn tranche of China's
international bond issue in a move that could prompt Asian governments and
companies to abandon their allegiance to US dollar debt in favour of the
European currency.

Bankers close to the deal said European pension funds and banks had
subscribed more than Euros 4bn for the 10-year tranche - China's largest
euro-denominated issue.

The strong demand from investors ranging from Finnish pension funds to
Italian asset managers vindicated Beijing's decision to break with tradition
and
raise most of the funds in euros. The US dollar tranche of the bond was
limited
to Dollars 500m of five-year notes, compared with previous fundraisings of
up to
Dollars 1bn.

Industry experts said the enthusiastic response from Europe could allay
fears
by other Asian companies and governments such as South Korea, over lack of
demand for their debt among European institutions.

"In the past, Asian debt issuance has been dollar-centric," said Patrick O
'Brien, joint head of Asia debt capital markets at UBS, which arranged the
euro
tranche of the bond with BNP Paribas and Deutsche Bank. "The success of this
issue may well usher in a new era in which Asian borrowers look to more than
one
currency."

Bankers said more than 40 per cent of demand for the euro portion of the
Chinese issue, which will pay a low level of interest relative to similar
bonds,
came from investors that had never previously bought Asian debt.

A Hong Kong-based fund manager from a European institution said that a
growing number of European investors were entering Asia's debt markets,
attracted by the improving finances of its companies and countries, and
China's
rapid economic growth.

Cristian Jonsson, head of UBS Asia debt syndicate, said some 7 per cent of
the orders for the euro tranche had come from Finnish pension funds, with
Italian and Spanish institutions accounting for 6 per cent.

Unlike previous euro-denominated issues from China, which had attracted
interest from domestic banks, raising questions over the genuine strength of
demand, only 3.5 per cent of the orders came from Chinese institutions.

The euro tranche, with a coupon of 4.25 per cent, was priced to yield 40
basis points over the swap rate - a measure of the interest charged by banks
when lending to each other. The US portion, with a coupon of 3.75 per cent,
was
priced to yield 60 basis points over US Treasuries.