Issuance and Marketing Strategy

1
Issuance and Marketing Strategy in the Local
Currency Market A Case Study of the ADB Panda
Bonds
May, 2006
2
Disclosures

• The information, tools and material presented in
  this report are provided to you for information
  purposes only and shall not be used or considered
  as an offer or the solicitation of an offer to
  sell or to buy or subscribe for securities or
  other financial instruments. BOCI Group may not
  have taken any steps to ensure that the
  securities referred to in this report are
  suitable for any particular investor. The
  contents of this report do not constitute
  investment advice to any person and such person
  shall not be treated as a customer of BOCI Group
  by virtue of receiving this report.
• Information and opinions presented in this report
  have been obtained or derived from sources
  believed by BOCI Group to be reliable, but BOCI
  Group makes no representation as to their
  accuracy or completeness and BOCI Group accepts
  no liability for loss arising from the use of the
  material presented in this report unless such
  liability arises under specific statutes or
  regulations. This report is not to be relied upon
  in substitution for the exercise of independent
  judgment. BOCI Group may have issued other
  reports that are inconsistent with, and reach
  different conclusions from, the information
  presented in this report. The reports reflect the
  different assumptions, views and analytical
  methods of the analysts who prepared them. For
  the avoidance of doubt, views expressed in this
  report do not necessarily represent those of BOCI
  Group.
• Information, opinions and estimates are provided
  on an as in basis without warranty of any kind
  and may be changed at any time without prior
  notice. Nothing in this report constitutes
  investment, legal, accounting or tax advice nor a
  representation that any investment or strategy is
  suitable or appropriate to your individual
  circumstances. Nothing in this report constitutes
  a personal recommendation to you.

3
Highlights of the ADB Panda Bonds Deal

• The debut of Panda Bond issued by International
  Development Institutions
• The first internationally AAA rated bond
  available to Chinese investors on the domestic
  market
• Catalyst to the opening of Chinese capital market
  as one of the first foreign issuers
• Another remarkable achievement for ADB in local
  currency markets
• Carefully prepared and successfully arranged
  one-on-one meetings and roadshows helped the
  issuer and investors learn about each others
  effectively, ensuring successful pricing
  optimal allocation
• Book-building and pricing mechanism accurately
  reflected investor demand at the time, and truly
  achieved market driven pricing
• Order oriented allocation ensured bonds are held
  by real interested investors
• Close cooperation between the issuer and the lead
  manager
• BOCI provided one-stop service from advisory,
  underwriting, to post-offering support
• Well-established sales network guaranteed the
  success of the offering

4
Table of Contents

• Overview of Chinas Bond Market
• ADB Panda Bonds Case Study
• 1. Transaction Summary
• 2. Marketing Strategy
• 3. Deal Execution
• 4. For Future Issuers
• BOCI Credentials

5

• Overview of Chinas Bond Market

STRICTLY PRIVATE AND CONFIDENTIAL
6
Bond Market Structure
Chinas Bond Market Chinas Bond Market Chinas Bond Market
Non- exchange markets Non- exchange markets Exchange markets
Inter-Bank Market OTC market Shanghai Shenzhen Stock Exchanges
Product Types Treasury bond Policy financial bond Corporate bond Regulatory agency Peoples Bank Of China Major investors Financial institutions Product Types Treasury bond Regulatory agency Peoples Bank Of China Major investors Institutions and households Product Types Treasury bond Corporate bond Convertible bond Regulatory agency China Security Regulatory Commission Major investors Institutions and households
7
Chinas Market Enjoys Exponential Growth
Issuance size comparison for government, policy
financial and corporate bonds
Over RMB 600 billion in 2003
(RMB Billions)
As of April 30
Sourcewww.chinabond.com.cn, BOCI Research
8

• ADB Panda Bonds Case Study
• 1. Transaction Summary
• 2. Marketing Strategy
• 3. Deal Execution
• 4. For Future Issuers

STRICTLY PRIVATE AND CONFIDENTIAL
9
Background

• In October 2005, The Asian Development Bank (ADB)
  completed one of the first-ever RMB Bond
  issuances by a foreign entity in the domestic
  Chinese market. BOC International acted as the
  Sole-lead Manager and Bookrunner on this
  transaction
• Domestic RMB Bonds issued by foreign entities
  were christened as Panda Bonds by the Ministry
  of Finance
• ADB and IFC were selected as the two pilot
  issuers in this market
• ADB and IFC simultaneously launched their issues
  during the week of 10th Oct, the ADB bond was
  listed on the Inter-Bank Market immediately
  following the offering
• ADBs October offering was the result of
  comprehensive preparation and planning as well as
  overcoming numerous issuance hurdles that spanned
  regulatory and legal aspects, settlement
  mechanisms and post-issuance arrangements
• By following international best practices and
  providing full disclosure, the issuer and lead
  manager set a precedence and contributed to the
  development of the local bond market
• The path blazed by this first issuance has
  cleared the way for further opening of this
  market.

BOCI successfully completed The Asian Development
Banks inaugural Panda Bonds in October 2005
10
Key Regulators
Ministry of Finance
National Development Reform Commission
The window department of RMB Bonds issued by
international development institutions,
coordinates applications reports to the Sate
Council for final approval.
MOF
Inspects and verifies the use of proceeds of the
bond.
NDRC
CGSD
Chinese Government Securities Depository Clearing
Trust Co. Ltd
PANDA BONDS
Peoples Bank of China
The only clearing and trust agency on the
Inter-bank market. Who is also the paying agent
for all bonds issued and traded in the Inter-bank
market.
The central bank, supervising the National
Inter-bank Bond Market.
PBOC
SAFE
State Administration of Foreign Exchange
China Securities Regulatory Commission
CSRC
Approves the opening of bank accounts. It will
also require monthly report from foreign issuers
about transactions relating to the bank account.
Regulator of the securities industry and the
stock exchanges.
11
Transaction Overview
The Asian Development Bank
Issuer

RMB denominated 10-year Fixed Rate Bond Panda
Bond
Issue


Issue Amount
RMB 1,000,000,000
General, direct, unconditional, unsubordinated
and unsecured obligations of the issuer
Type


14 October 2015
Maturity Date

3.34 Annual Fixed Coupon
Coupon Rate/Frequency

100
Issue Price

AAA by SP, Aaa by Moodys, and AAA by Fitch
Credit Rating
The National Inter-bank Bond Market
Listing


China Government Securities Depository Trust and
Clearing Co.,Ltd
Depository/Paying Agent

Laws of the Peoples Republic of China
Governing Law
Sole Lead Manager and Book-Runner
BOC International (China) Limited

12
Significant Achievements

• As this is the first of its kind, the ADB Bond
  deal overcame a significant number of execution
  hurdles
• The transaction followed international standards
  of disclosure and execution, in line with the
  issuers objective to promote the development of
  the domestic bond market

Groundbreaking Execution

• Effective marketing strategy strong selling
  effort
• Attracted a high quality order book with an
  subscription ratio of more than 2.8x, especially
  when compared to an average subscription ratio
  of under 2.0x for other financial bonds during
  the same period
• Conducted a domestic roadshow, a first for
  domestic bond issuances, in Beijing and Shanghai
  to introduce ADB to the Chinese investor base
• Published an effective pre-deal research piece to
  highlight the credit of ADB

Effective Marketing Strategy
Attractive Pricing

• Conducted a full marketing program tightly
  coordinated by BOCI, thus ensuring that pricing
  reflected true demand from investors
• As a result, ADBs offering achieved the tightest
  pricing of comparable issues

13

• ADB Panda Bonds Case Study
• 1. Transaction Summary
• 2. Marketing Strategy
• 3. Deal Execution
• 4. For Future Issuers

STRICTLY PRIVATE AND CONFIDENTIAL
14
Highly Effective Marketing Strategy
Strong Syndicate Structure
Comprehensive Pre-marketing
Effective Roadshow Program

• BOCI was the sole bookrunner tightly coordinating
  the entire marketing process
• Supplemented with a syndicate of 7 domestic
  financial institutions to maximize investor reach
  and achieve a broad and stable investor base

• Comprehensive pre-marketing since beginning of
  the deal
• Full pre-deal research piece (which is an
  international practice, and in compliance with
  PRC regulations)
• Market soundings by our research analyst and
  salespeople

• The first-ever formal roadshow program used in
  conjunction with a domestic bond offering
• Investor group meetings in Beijing and Shanghai
  allowed over 50 institutional investors to meet
  with ADB management over the marketing period

15
Highly Efficient Time Table
Distribute pre-deal research
Form syndicate
One-on-One meetings with potential anchor
investors
Formal feedback from investors
Re-priced pricing range
Deal Launched
Roadshow
Bookbuilding
Within a short time frame of two months, BOCI
successfully completed ADBs inaugural Panda
bonds in China via an extremely efficient
execution process
Pricing and Allocation
16
Fully Leveraging the Syndicate Structure

• Selection of syndicate members to complement
  BOCIs strengths
• The syndicate consistent with domestic practice,
  and syndicate members stand by underwrite their
  commitments at the beginning of the deal
• However, as an innovation to satisfy ADBs desire
  to achieve a balanced investor base, BOCI as
  bookrunner allocated the syndicates demand
  according to quality of demand. This is more
  common in international debt offerings
• In order to maximize the syndicates efficiency
  in communicating ADBs investment merits and
  pricing rationale, BOCI invested much time and
  effort to educate and familiarize the syndicate
  members with the credit story of ADB
• As the sole bookrunner, BOCI was able to manage
  the investment story and generate demand tension

17
Comprehensive Pre-marketing Effort

• BOCIs top-ranked fixed income research team
  produced a full report on ADB in Chinese a few
  days prior to the offering
• As the domestic investor base did not previously
  have much exposure to ADB, this was important in
  their credit assessment and pricing
  considerations
• Following issuance of the research report, our
  research analyst and sales team met with
  potential investors to assess their preferences,
  concerns and demand levels prior to the official
  launch of the deal
• BOCI has conducted pre-marketing one-on-one
  meeting with over institutional 14 investors
• Only large size potential anchor investors were
  approached at this stage
• The feedback was important in allowing us to
  recommend and set an accurate price range for the
  offering

Pre-marketing effort enhanced understanding of
ADB by potential anchor investors
18
Roadshow
Agricultural Bank of China AIG Shanghai
Branch Bank of China Shanghai Capital Mgmt
Centre Bank Of Communications Bank Of
Communications Schroder Fund Management
Changjiang BNP Paribas Securities China
Continent Property Casualty Insurance China
Pacific Insurance (Group) China People Insurance
AM Citibank Shanghai Branch Deutsche Bank
Shanghai Branch Galaxy Fund Managemnet Guolanan
Fund Managemnet Guotai Fund Managemnet Guotai
Junan Securities Guotai Life Insurance
Agricutural Bank of China Bank of China Beijing
Bank Beijing Rural Commercial Bank China Fund
Management China Life Asset Management China
Postal Savings Reserve Bureau China Reinsurance
Asset Management China Shipping High Industry
Finance CNOOC Finance Everbright Bank of
China Harvest Fund Management ICBC UBS Asset
Management Mingsheng Bank of China Mingsheng
Life Insurance Taikang Life Insurance
Beijing
Shanghai
Haifutong Fund Managemnet Haire New York Life
Insurance HSBC Shanghai Branch Huaan Fund
Managemnet J.P Morgan Chase Shanghai
Branch Manulife-Sinochem Insurance Pingan
Insurance (Group) Shanghai Auto (Group) Finance
Shanghai Baoshan Steel Finance Shanghai Baoshan
Steel Group Shanghai Pudong Development
Bank Shanghai Rural Commercial Bank Shenyin
Wanguo Securities Sino Life Insurance Standard
Chartered Bank Shanghai Taiping Life Insurance
Tianan Insurance Investment Mgmt Centre
17 investors in Beijing and 33 in Shanghai
19

• ADB Panda Bonds Case Study
• 1. Transaction Summary
• 2. Marketing Strategy
• 3. Deal Execution
• 4. For Future Issuers

STRICTLY PRIVATE AND CONFIDENTIAL
20
Pre-Offering Phases

• Policy Approval

• Appointment
• by ADB

Application Preparation

• Application to Authorities

• November 2004, Chinese government gave policy
  approval for Panda bond issuance

• December 2004, BOCI was appointed by ADB as the
  manager for its inaugural Panda bond offering

• All key application documents were prepared
  between December 2004 to March 2005

• Obtain approvals from Ministry of Finance,
  Peoples Bank of China and State Administration
  of Foreign Exchange

Ready to Launch
21
The Role of The Sole Lead
Rating Advisory
BOCI acted as the interface between ADB and the various financial intermediaries in China. BOCI also helped ADB with its communications and approval process with the Chinese Government.
Legal Opinion
Accounting Statements
Paperwork for SAFE,PBOC,SDRC,etc.
22
Marketing Plan And Investment Story (1)

• PRE-MARKETING

Target investor groups Target investor groups
Banks Insurance Companies other Institutional investors
Rationale Rationale
The most active and influential investors in the local bond market
With large portfolio size and appetite for quality names
Already familiar with ADB and its international issuer status
23
Marketing Plan And Investment Story (2)

• Road Show

3 major financial centers Beijing, Shanghai and Shenzhen
Maximize Key investor coverage
Follow international practice, such as luncheon presentations and 1 on 1 meetings
Pricing in Shanghai, based on the prevailing Treasury benchmark yield on pricing day
Invite leading domestic financial media to boost publicity
24
Marketing Plan And Investment Story (3)

• Investment Story

First high-quality, international issuer in the RMB bond market
Strong financial position and debt servicing capacity
Government support and Quasi-Sovereign status
Proven success in local markets
Commitment to the development of Chinas RMB bond market
25
Pricing Parameters
ADB achieved tighter pricing than similar
offerings
IFC 10 year 3.40
CDB Bond
CDB 10 year 3.35
Treasury Bond
ADB 10 year 3.34

• The pricing achieved was 25 bps over comparable
  Chinese Treasuries
• One must note that only Chinese Treasury coupons
  are tax-exempt whereas Panda bond holders are
  subject to income taxes, taking that into
  account, the pricing is extremely favorable

26
Investors Allocation
Order Distribution by Investor Type
Allocation By Investor Type

• Instead of the proportional distribution, we
  aimed to reflect issuer preference in the
  allocation
• The final allocation is determined based on both
  order demand investor characteristics

27
Positive Media Reactions
BEST Multilateral DEAL IN Local CURRENCY
Emerging Markets - 4th May 2006
.it will help develop an interest-rate system
that is more market based and provide an outlet
for the countrys large pool of savings.
The success of ADB issue demonstrates the
readiness of Chinas bond market for
participation by foreign issuers and investors.
The Panda bond represents a step towards adopting
global best practices particularly in disclosure,
documentation, and deal management
A well functioning bond market will enable China
to reduce the risk of over dependency on bank
lending
28
Highlights of the Deal

• The debut of Panda Bond issued by International
  Development Institutions
• The first internationally AAA rated bond
  available to Chinese investors on the domestic
  market
• Catalyst to the opening of Chinese capital market
  as one of the first foreign issuers
• Another remarkable achievement for ADB in local
  currency markets
• Carefully prepared and successfully arranged
  one-on-one meetings and roadshows helped the
  issuer and investors learn about each others
  effectively, ensuring successful pricing
  optimal allocation
• Book-building and pricing mechanism accurately
  reflected investor demand at the time, and truly
  achieved market driven pricing
• Order oriented allocation ensured bonds are held
  by real interested investors
• Close cooperation between the issuer and the lead
  manager
• BOCI provided one-stop service from advisory,
  underwriting, to post-offering support
• Well-established sales network guaranteed the
  success of the offering

29

• ADB Panda Bonds Case Study
• 1. Transaction Summary
• 2. Marketing Strategy
• 3. Deal Execution
• 4. For Future Issuers

STRICTLY PRIVATE AND CONFIDENTIAL
30
Requirements Under Current Interpretation
Pre-Qualification of the Issuer
Potential issuer must be an international
development institution with a strong focus on
projects in China
Have made loans to and/or equity investments in
domestic projects in excess of US1 billion in
total
Requirement for the Issuance
Proceeds from the bond to be used as mid- to
long- term loans for fixed assets or equity
investments, which should be in line with Chinas
industrial policy
Past three years financial statements audited
according to PRC GAAP to be provided as part of
the application package
The bond is to be rated AA or better by domestic
PRC credit rating agencies
31
Pricing Analysis

• The benchmark treasury bond
• Other comparable domestic issues, such as the
  China Development Bank (for financial
  institutions)

Key Pricing Benchmarks

• Tax Treatment
• Chinese Treasuries are the only bonds in China
  whose coupons are not subject to income tax. An
  appropriate premium due to tax treatment would
  need to be added for all other bonds

Adjustments Over Benchmark

• Liquidity Spread
• Depending on the size and estimated trading
  liquidity of the bond, investors would expect to
  receive a premium on the issue

• Other Factors
• Other factors may also come into play to affect
  the pricing of the bond, such as familiarity of
  the credit, investor preference and also market
  volatility during the time of issue

32
Comparables Pricing
Issue Date Maturity Date YTM
Over Treasury
Chinese Treasuries CDB
2/28/2005
2/28/2015
-
2.851
3.102
25
8/2/2005
8/2/2015
1. Pricing as of May 23, 2006 , 2. Pricing as of
May 24, 2006

• 10-year Chinese Treasuries are currently trading
  at 2.85 (May 23, 2006)
• CDBs 10-year bond currently trades at around 25
  bps spread over the Treasury, while the
  historical spread of CDB bonds over Treasuries
  ranged from 15-30bps

33

• BOCI Credentials

STRICTLY PRIVATE AND CONFIDENTIAL
34
BOCI A Unique Fixed Income House
The only investment bank with full RMB and
international debt capabilities
Leader in the RMB debt market
Exceptional distribution capability
BOCIs Unique Advantage
Strong backing of the BOC Group
Combination of local expertise and international
capital markets experience
BOCI Research sets the industry standard
35
BOCI BOCs Investment Banking Arm
Bank of China is China's oldest and pre-eminent
commercial bank since 1912 BOCI is Bank of
Chinas wholly-owned Investment Banking arm
Other Businesses
Premier commercial bank in China and Hong Kong
Leading investment bank with global operations
100
49 Controlling Stake
BOCI China (Domestic Debt and Equity Markets)
36
Strength of BOC Group
Bond Issuance Asia( ex-Japan )
G3 Bond Issuance Hong Kong (Incl. Red Chips)
1st Half 2005
1st Half 2005

• BOC Groups strength is demonstrated by being
  ranked 2 in the Asia (ex-Japan) bond issuance
  market since January 2005 to date, according to
  Finance Asia
• According to AsiaMoney, BOCI ranked 7 in the
  Hong Kong G3 currency bond issuance market (incl.
  Red Chips) within a short time frame of one year

Ranking
Underwriter
Ranking
Underwriter
JP Morgan HSBC Deutsche Bank ABN Amro Morgan
Stanley Merrill Lynch BOCI Citigroup CSFB
1 2 3 4 5 6 7 8 9
Korean Development Bank BOC Group Citibank HSBC JP
Morgan ICBC Deutsche Bank China Construction
Bank Agriculture Bank of China Woori Finance
Holding
1 2 3 4 5 6 7 8 9 10
Source Finance Asia
Source Asia Money
37
Leadership In The Domestic Debt Market
Corporate Bonds

• Up to Oct. 30, 2006, we have led and participated
  in 47 corporate bond offerings. From 2002 to
  2005, the annual amount of corporate bonds we
  underwrote grew from RMB 285 million to RMB 4.5
  billion
• In early 2003, BOCI joined the underwriting
  syndicate for exchange-listed Government bonds.
  In 2004, we became a tier one member of the
  treasury bond syndicate and a member of the
  underwriting syndicate for China Development
  Banks financial bonds. From then on, BOCI has
  continuously kept the first position among all
  securities companies in those two syndicates
• Thanks to our research capabilities, we
  constantly design and promote new fixed income
  instruments tailored to meet our clients
  financing needs. New products such as
  subordinated bonds, Asset-Backed Securities,
  structured financing facilities, are also well
  received among institutional investors

Government and Financial
New Products
38
Leader In The Domestic Bond Market
China Resources Corporation RMB 3 Billion
39
Unique Position in International Debt Markets

• BOCI is the only Chinese institution that has the
  capacity of issuing and trading bonds in the
  international capital market
• BOCI is establishing itself as a major force in
  G3 currency debt issuance by Chinese and Hong
  Kong corporates, governments and quasi-government
  organizations
• Combining our dedication to a single issuing
  client market with significant international debt
  markets expertise
• Ability to navigate local regulatory framework
  through strong relationships with the Ministry of
  Finance, PBOC, CSRC, National Development and
  Reform Commission and other regulatory bodies
• Access to major international investors through
  sales teams in Hong Kong, Singapore, London,
  Shanghai, and Beijing
• In addition, we are introducing to the fixed
  income investment market a new class of
  investors PRC institutions investing in foreign
  currency assets
• We have participated in major foreign currency
  transactions
• Arranger, Joint Global Coordinator and Bookrunner
  for Hong Kong SAR Governments Inaugural
  Multi-currency Global Bond and China Merchants
  Holdings (International)s US500m global
  offering
• In 2005, BOCI was a Joint Lead Manager in China
  Eximbanks US1.0bn Global Bond Offering
• Co-lead manager in the PRC Sovereign Issue, China
  Eximbank and China Development Bank in 2004 and
  2005

40
Senior Roles in Major G3 Currency Bond Offerings
China Export-Import Bank
41
Contact Details
Cynthia Wang Fixed Income Tel 8610
85184028 Fax [phone] e-mail
cynthia.wang_at_bocigroup.com
BOC INTERNATIONAL (China) Limited Room 705,
Tower E1, Oriental Plaza, No.1, East Chang An
Ave., Dong Cheng District, Beijing, 100738,
China Internet www.bocigroup.com