Huaneng Power International said yesterday it's been approved for the mainland's biggest bond issue worth 5 billion yuan, after a rule change in June.

 

Publicly listed Huaneng builds and operates large thermal power plants on the mainland. The company is a major power producer in China.

 

The company told the Shanghai exchange it would issue 50 million bonds at 100 yuan apiece. The issue comprises 1 billion yuan of five-year bonds, 2 billion yuan in seven-year bonds and 2 billion yuan of 10-year bonds.

 

The indicative coupon rate ranges from 5.45 to 5.75 percent for the five-year bonds, 5.55 to 5.85 for the seven-year bonds and 5.7 to 6 percent for the 10-year bonds.

 

The Huaneng issue is sponsored by CITIC Securities and guaranteed by Bank of China and China Construction Bank.

 

Institutional investor bidding for the bonds, which starts tomorrow, will determine the actual coupon rates.

 

The current yield of government bonds with a five-year maturity is 4.23 percent, with seven-year bonds at 4.34 percent and 10-year at 4.43 percent.

 

Financial experts said they expect actual coupon rates to be set at the lower end of the range due to strong demand. "The market is flush with liquidity," said Nie Wen, an analyst at Industrial Securities in Shanghai.

 

Analysts said Huaneng's coupon rates, even at the lower end of the indicative range, are priced higher than previous issues to entice institutional investors.

 

The coupon rate for China Yangtze bonds with a 10-year maturity was set at 5.35 percent and China Offshore Oil bonds with the same maturity were set at 5.77 percent. The China Yangtze and China Offshore bonds are currently traded at prices with a yield of 5.38 percent and 5.76 percent.

 

Analysts expect the Huaneng bond issue will be snapped up by insurers and fund management companies.

 

"With an enlarging market scale, more and more institutional investors are expected to become active in the corporate bond market," said Nie.

 

"The increase of the corporate bond supply will help improve market liquidity, as a growing number of companies will issue corporate bonds next year."

 

Analysts said the launch of the mainland's largest corporate bond issue would expand the market scale and bring more companies as well as a wider choice of fixed-income instruments for institutional investors.

 

(China Daily December 21, 2007)