Linklaters has advised on the first offshore RMB bond issue by a PRC corporate. The groundbreaking RMB 3.6bn three-tranche dated senior unsubordinated debut issue of Baosteel Group Corporation, a Fortune Global 500 company with one of the highest ratings among PRC corporates (A3 by Moody’s, A by S&P and A – by Fitch) is also the largest ever offshore RMB corporate bond offering to date, illustrating the depth of the rapidly expanding offshore RMB bond market.
For this transaction, Linklaters advised Deutsche Bank AG and The Hongkong and Shanghai Banking Corporation Limited as joint global coordinators and China Merchants Securities (HK) Co., Limited, DBS Bank Ltd., Deutsche Bank AG, Hong Kong Branch, The Hongkong and Shanghai Banking Corporation Limited, ICBC International Capital Limited, ICBC International Securities Limited and Standard Chartered Bank (Hong Kong) Limited as joint bookrunners and joint lead managers on the first offshore RMB bond issue by a PRC corporation issuer.
The issue by Baosteel Group Corporation is the first direct issue by a PRC corporate, and is seen as a benchmark deal for the region and an important benchmark for long-dated paper.
Several complex PRC legal issues were considered due to the unprecedented nature of the transaction, including the requirement to register the bonds with the PRC State Administration of Foreign Exchange post pricing, and the additional protection of a redemption right backed up by an escrow mechanism if such registration were not to be completed within a definite timeframe.
The issuer intends to use the proceeds as a capital contribution to its offshore wholly-owned subsidiary, Baosteel Resources (International) Limited, taking advantage of the new Chinese government initiative which encourages home-grown strategically important enterprises to make strategic acquisitions to enable China to develop self-sufficiency in natural resources.
The team was led by William Liu, Terence Lau and Liping Heng in Hong Kong, Bryan Chan in Shanghai, and supported by Andrew Carmichael in Tokyo.
William Liu, a partner in 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, which is what international investors have been seeking for years. Baosteel is the largest of the three steelmakers under the direct supervision of the State-owned Assets and Supervision Commission of the central government of the PRC, and the deal was very well received by the market. Our experience of advising on international offerings by PRC corporates and our unrivalled track record in the offshore RMB market meant that we were well placed to act on this landmark issue, and we are delighted to have been given the opportunity to create another first in the RMB offshore credit market.”
Andrew Malcolm, 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, and is a healthy development in the range of potential structures for offshore RMB denominated paper available in the market. We expect Baosteel to be but one of a long list of investment grade PRC.
