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Shibor-based floating-rate bond debuts

(Agencies/chinadaily.com.cn)
Updated: 2007-06-20 16:29

China Development Bank said it sold the country's first floating-rate bond based on the new interbank benchmark rates for borrowing, the Shanghai Interbank Offered Rates (Shibor), a 10 billion yuan (US$1.3 billion) five-year issue, at a coupon of 48 basis points over three-month Shibor.

The bid-to-cover ratio in the sale was a strong 2.08 times, the bank said in a statement Tuesday. Commercial banks includingChina Merchants Bank, Tianjin Bank and Beijing Bank took out nearly 90 percent subscriptions.

The pricing came within market forecasts for a spread between 40 and 50 basis points. Traders had expected the bonds to attract good demand in an environment of rising interest rates.

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The result of the sale will be a benchmark for other banks planning to issue floating-rate bonds using Shibor, traders said. China in January introduced the Shibor, which are set by lenders making bids for borrowing and cover maturities from overnight to one year. Under the arrangement, Shibor are modeled on the London interbank offered rates to serve as a reference interest rate for issuers of bonds and loans.

Previously, floating-rate bonds were based on the benchmark one-year bank fixed deposit rate, or on bond repurchase rates.

The sale is another step in efforts to promote the use of Shibor, which authorities launched at the start of this year as part of a drive to make the debt market more efficient and transparent.

Traders said that, if the one-year deposit rate had been used to price the bond, the spread would probably have come in slightly lower, at around 45 basis points.

This is because three-month Shibor has been rising relatively slowly, influenced by the central bank's decision to keep the yield on its three-month bills stable at auctions for the past month.

Although the central bank has hiked the one-year deposit rate by a total of 54 basis points this year, three-month Shibor has risen by only 25 basis points, to 3.0610 percent on Tuesday.

As Shibor becomes more widely used, it is likely to rise further as it moves into line with the rest of the interest rate curve, but this may take many months, traders believe.