Guangdong first to sell debt on own credit

Beijing firm sets the trend for overseas float

Beijing Infrastructure Investment Co's success in the overseas bond market might inspire more followers, analysts said.

BII is the urban rail transport arm of Beijing and is 100 percent owned by the municipality.

The company sold 1.2 billion yuan ($194.6 million) of three-year securities at 3.75 percent in Hong Kong last week, becoming the first Chinese subway company to tap the overseas bond market. The company issued $300 million of five-year dollar bonds at 3.625 percent in March.

"More local government financing vehicles are likely to follow suit for cheaper costs and flexibility," said Ivan Chung, senior vice-president of greater China credit research and analysis at Moody's Investors Services.

"There's a huge difference in onshore and offshore funding expenses. Also, the strong demand and limited supply of yuan products abroad is favorable."

Fiscal support from the Beijing government underpins Standard & Poor's Financial Services LLC's rating on BII (A+/Stable), the rating agency said. It said that the Beijing government funds the subway system's construction and cushions its operating losses through annual subsidies.

"We see an almost certain likelihood of extraordinary government support for BII because the company plays a critical role as the municipal government's sole company involved in rail transport investment and financing," the research note said.

Chung said not every local government financing vehicle meets the criteria to sell bonds overseas. BII features a sustainable financing structure, public-private partnership and, most important, the government's long-term funding commitment.

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