China Three Gorges joins offshore fundraising rush

The sluice gates of the Three Gorges Dam. [Photo/Xinhua]

One syndicate banker pitching for the deal said the issuer would probably look at long tenors of at least 10 years considering the nature of the business. He added that he would recommend using top-tier Chinese SOEs, such as CNPC, CNOOC, State Grid and Sinopec, as comparables when pricing the deal due to its high strategic importance.

Double A rated Sinopec's May 2020 onshore renminbi bonds were last week yielding 4.1 percent, while its longer-dated April 2023 US dollar bonds were yielding 3.4 percent.

"There will be a new-issue premium, obviously, but I don't think it's going to be huge. Not in this market," said the banker.

The pricing will also depend on how China Three Gorges structures its bonds. Other top-tier SOEs have used onshore parent guarantees, rather than keepwell structures, which allowed CNPC's latest Aa3/AA- bond to price through its existing curve.

Another banker added that China Three Gorges would be able to issue multiple tranches of up to 30 years in a Reg S-only market, but might have to pay up to achieve a large size.

Standard & Poor's affirmed its A long-term corporate credit rating on China Three Gorges last August and kept the outlook stable, while Moody's first rated China Three Gorges A1 with a stable outlook in August 2012.

Both credit agencies based their ratings on the company's strategic importance and 100 percent State ownership. S&P expects China Three Gorges to maintain its strong operating performance and continue to benefit from Chinese government support if the company experiences financial stress.

China Three Gorges' spending will increase significantly over the next three to five years due to resettlement and construction costs for mega hydro projects Wudongde and Baihetan, according to the S&P report.

China Three Gorges owns and operates the Three Gorges Project, which was established in 1993.