Bank of China is printing the first deal out of China to be dubbed a covered bond today (Thursday), a three year green issue backed by domestic climate bonds, although bankers noted the deal is being priced in line with the issuer’s senior debt. CBA is meanwhile taking orders for a multi-tranche Australian dollar issue.

Bank of China’s (BOC’s) dual recourse transaction, which was announced on Monday of last week (24 October), is backed by a portfolio of 11 green bonds from six issuers. The deal is the first from China to be marketed as a covered bond, and the country has no legal covered bond framework.

The three year Reg S issue was launched today with the size capped at $500m (RMB3.38bn, Eu451m) and with initial price thoughts of the 115bp over Treasuries area. Guidance was then set at the 95bp-100bp area, will price within range, on the back of over $1.2bn of orders.

BOC, Citi and HSBC are joint global coordinators of the deal, and are joined as joint bookrunners and joint lead managers by BAML, Barclays, Crédit Agricole, SG and Standard Chartered.

Bankers noted that the deal is set to be priced roughly in line with BOC’s senior unsecured curve, seeing its July 2019s at 98bp over Treasuries, and wider than the senior unsecured curves of some other Chinese issuers, seeing China Construction Bank September 2019s at 89bp.

“It is quite unusual for a covered bond to not price inside senior, but this is not a triple-A covered bond and there is no legal framework,” said a banker at one of the leads. “This is just a pledge with a portfolio of climate bonds.

“You cannot compare this covered bond to a European one.”

Moody’s yesterday (Wednesday) assigned BOC a provisional Aa3 rating for the issuance, giving it one notch of uplift over the issuer, while noting several weaknesses of the product compared with traditional covered bonds.

Some covered bond market participants have questioned whether the deal can appropriately be titled a covered bond.

Commonwealth Bank of Australia (CBA) launched its multi-tranche Australian dollar-denominated covered bond after yesterday announcing a mandate for a trade that would include any or all of: a floating rate five year tranche, a fixed rate five year tranche and a 10 year fixed rate tranche.

Sole-lead CBA yesterday gave initial price thoughts of three month BBSW plus the mid-to-high 80s and swaps plus the mid-to-high 80s for the floating and fixed rate five year tranches, respectively, and swaps plus the low 100s for the 10 year tranche. Guidance was today set at the 85bp-88bp area for the five year tranches and the 100bp-103bp area for the 10 year. The deal is expected to be priced tomorrow (Friday).