Chinese SBLC-backed bond first explained

Abstract

ZhengTong's bond offering marks the first time the Bank of China has given a standby letter of credit (SBLC) to a private sector issuer; The SBLC allowed ZhengTong to use Bank of China's A1 rating, reducing funding costs. However it priced at a 4.5% coupon, which was significantly higher than SOE offerings backed by SBLCs; The Bank of China is to-date the only bank to provide SBLCs. However, more Chinese banks are expected to begin providing such credit enhancements to bond issuers. China ZhengTong Auto last month became the first Chinese private sector issuer to offer a bond backed by a standby letter of credit (SBLC). The deal is expected to open the market for private sector ChinaCos looking to the international bond markets.