Bonds as a means to ride B&R

Gansu Provincial Highway Aviation Tourism Investment Group Co or GHATG, the largest State-owned enterprise by asset volume in northwestern China's Gansu province, plans to sell more bonds to investors in major European economies, including the United Kingdom, Germany and France, in the second half of this year.

That GHATG is keen to boost its earning capacity is a given. It issued its first round of euro-denominated bonds in Hong Kong and Europe last month. Its three-year bonds to the global market in late December for 410 million euros ($500.7 million) are part of a major move by GHATG to heed the country's call and participate in the development of the Belt and Road Initiative.

Before the move, the group sent teams to London, Frankfurt and Hong Kong to conduct presentations of the new bond issue to potential investors.

It was the second time that GHATG floated bonds in overseas markets. It is part of its broader push to go global. Based in Lanzhou, the provincial capital, the SOE raised $500 million from its first bond issue in November 2016.

Shi Peirong, chairman of GHATG, said the company has been planning this for a long time. The money will be used to build highways, roads, airports and other infrastructural facilities within the province.

The deal was coordinated and completed by financial institutions including Bank of China, Citibank and London-based Barclays Bank. For credit rating services, the group opted for Standard & Poor's and Fitch.

"Even though the economic growth pace of Europe, Japan and many other developed countries has relatively slowed for several years, the group's bonds were favored by international investors, including banks, funds, asset management companies and private investors," Shi said.

"The final orders we received from 36 global investors were double what we expected, and 83 percent of our investors were from Asia and the rest were from Europe."

The bond's 1.87 percent interest rate was lower than the average bond issued in the domestic market. It not only continued to highlight the fame of Gansu in the global capital market but also set an example in the home market of using euro-denominated bonds for big-ticket infrastructure projects.

The group now manages assets worth 32 billion yuan ($ 4.98 billion) and is the only company entitled to issue bonds in the global market, as it has been authorized by the National Development and Reform Commission.

"Big-ticket infrastructure projects supported by euro-denominated bonds will further facilitate GHATG's exports of agricultural, heavy industry and new energy products to global markets via a better developed transportation network," Shi said. "This will also create more jobs in the services sector in the long term."

Tang Renjian, governor of Gansu province, said the successful sale of euro-denominated bonds has revealed a lot about the perception of the Chinese economy and the ongoing supply-side structural reform. The stability and the potential of the Belt and Road Initiative have been widely acknowledged by global investors.

"The growing trade opportunities, tourism resources and industrial upgrading boom of western China will further attract investment," Tang said. "It also showed that Gansu has cultivated a number of outstanding companies, which are ready to accept the challenge from the global capital market."

Insufficient infrastructure in transport has been one of the main barriers to Gansu's economic growth. The provincial government released its action plan to achieve a breakthrough in its transport network building in 2015.

According to the plan, a total of 800 billion yuan is expected to be invested in infrastructure, including 67,000 kilometers of highways and 3,400 kilometers of railroads before 2020.

The plan is expected to solve the transport problem once and for all, and lay a foundation for better communication along the Silk Road Economic Belt.

The provincial government therefore gave the permission to allow GHATG to step in and take over highways and airport development, including handling financing, investment, building and management.

"Gansu has long been a stronghold on the ancient Silk Road. It connects East and West and provides an important path for cultural and economic exchanges," said Wang Zhile, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing.