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Issuance and Marketing Strategy in the Local Currency Market –

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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 China’s 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 China’s Bond Market
STRICTLY PRIVATE AND CONFIDENTIAL

6 Shanghai & Shenzhen Stock Exchanges
Bond Market Structure China’s Bond Market 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 People’s Bank Of China Major investors Financial institutions Institutions and households Convertible bond China Security Regulatory Commission Institutions and households

7 China’s 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 Source:www.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 ADB’s 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 Bank’s inaugural Panda Bonds in October 2005

10 Key Regulators MOF NDRC CGSD PANDA BONDS PBOC SAFE CSRC
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 People’s 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 : The Asian Development Bank Issue : RMB denominated 10-year Fixed Rate Bond – Panda Bond Issue Amount : RMB 1,000,000,000 Type General, direct, unconditional, unsubordinated and unsecured obligations of the issuer : Maturity Date : 14 October 2015 Coupon Rate/Frequency : 3.34% Annual Fixed Coupon Issue Price : 100% Credit Rating : “AAA” by S&P, “Aaa” by Moody’s, and “AAA” by Fitch Listing : The National Inter-bank Bond Market Depository/Paying Agent : China Government Securities Depository Trust and Clearing Co.,Ltd Governing Law : Laws of the People’s Republic of China Sole Lead Manager and Book-Runner : BOC International (China) Limited

12 Significant Achievements
Groundbreaking Execution 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 issuer’s objective to promote the development of the domestic bond market 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, ADB’s 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
Form syndicate Distribute pre-deal research One-on-One meetings with potential anchor investors Formal feedback from investors Bookbuilding Roadshow Deal Launched Re-priced pricing range Pricing and Allocation Within a short time frame of two months, BOCI successfully completed ADB’s inaugural Panda bonds in China via an extremely efficient execution process

16 Fully Leveraging the Syndicate Structure
Selection of syndicate members to complement BOCI’s 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 ADB’s desire to achieve a balanced investor base, BOCI as bookrunner allocated the syndicate’s demand according to quality of demand. This is more common in international debt offerings In order to maximize the syndicate’s efficiency in communicating ADB’s 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 ICBC ABC CCB Everbright Guo Tai & JunAn Shenyin &WanGuo Changjiang BNP Paribas Syndicate Members – 5% Stand-by underwriting each Sole Lead Manager and Bookrunner – 65% underwriting

17 Comprehensive Pre-marketing Effort
BOCI’s 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 17 investors in Beijing and 33 in Shanghai
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 Application Preparation
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, People’s Bank of China and State Administration of Foreign Exchange Ready to Launch Applications to Authorities Ministry of Finance People’s Bank of China State Administration of Foreign Exchange

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: Banks Insurance Companies other Institutional investors 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)
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 China’s RMB bond market

25 ADB achieved tighter pricing than similar offerings
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 country’s large pool of savings…. The success of ADB issue demonstrates the readiness of China’s 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 US$1 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 China’s 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 Key Pricing Benchmarks Adjustments Over Benchmark
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 2.85%1 - 8/2/2005 8/2/2015 3.10%2 25 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) CDB’s 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
Leader in the RMB debt market The only investment bank with full RMB and international debt capabilities Strong backing of the BOC Group BOCI’s Unique Advantage Exceptional distribution capability BOCI Research sets the industry standard Combination of local expertise and international capital markets experience

35 BOCI: BOC’s Investment Banking Arm
Bank of China is China's oldest and pre-eminent commercial bank since 1912 BOCI is Bank of China’s wholly-owned Investment Banking arm Premier commercial bank in China and Hong Kong Other Businesses Leading investment bank with global operations 100% 49% Controlling Stake BOCI China (Domestic Debt and Equity Markets)

36 – Hong Kong (Incl. Red Chips)
Strength of BOC Group Bond Issuance – Asia( ex-Japan ) G3 Bond Issuance – Hong Kong (Incl. Red Chips) 1st Half 2005 1st Half 2005 BOC Group’s 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 1 2 3 4 5 6 7 8 9 10 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 JP Morgan HSBC Deutsche Bank ABN Amro Morgan Stanley Merrill Lynch BOCI Citigroup CSFB 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 Bank’s 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
Sole Lead Yuntianhua Group RMB 1 Billion 2006 Joint Lead 2006 Sole Lead Fujian Industry Bank RMB 5 Billion 2006 Sole Lead Fujian Industry Bank RMB 10 Billion 2005 Sole Lead Asian Development Bank RMB 1 Billion 2005 China Resources Corporation RMB 3 Billion Joint Lead China Resources Corporation RMB 3 Billion 2005 China Railway Department RMB 5 Billion 2005 Joint Lead Lead CITIC GuoAn Corporation RMB 1.5 Billion 2004 Sole Lead Zhejiang Traffic Corporation RMB 1.4 Billion 2004 Joint Lead Petro China RMB 1.5Billion 2003 2006 Zhongyuan Expressway Company RMB 1.5Billion Co-Lead 2006 Sinohydro Corporation RMB 1.2Billion Co-Lead Air China RMB 3 Billion Co - Lead 2005 Co - Lead State Grid RMB 4 Billion 2005 2005 Co - Lead China Nuclear Industry RMB 2 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 Government’s Inaugural Multi-currency Global Bond and China Merchants Holdings (International)’s US$500m global offering In 2005, BOCI was a Joint Lead Manager in China Eximbank’s US$1.0bn 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
US$375m Private Placement 2005 Advisor/Investor Shui On Land US$1.0billion Global Bond 2005 Joint Lead Manager US$500million Global Bond 2005 Arranger, Joint Global Coordinator & Bookrunner China Merchants International Arranger, Joint Global Coordinator & Bookrunner HKSAR Government HK$20.0billion Inaugural Multi-Tranche Global Bond 2004 1999 Joint Lead Manager China Mobile (HK) US$600m Fixed Rate Notes 1997 Joint Lead Manager US$300m Fixed Rate Notes China Export-Import Bank Co-lead Manager China Development Bank US$100billion Fixed Rate Notes 2005 2005 Chaoda Modern Agriculture US$225m High Yield Offering Co-lead manager Co-lead Manager Peoples Republic of China US$500m Fixed Rate Notes 2004 Co-lead Manager China Development Bank US$600m/Euro 325m Fixed Rate Notes 2004 Co-lead Manager China Export-Import Bank US$750m Fixed Rate Notes 2004 Co-lead Manager China Development Bank US$500m Fixed Rate Notes 2003 Co-lead Manager CNOOC Limited US$500m Fixed Rate Notes 2002 Senior Co-lead Manager Peoples Republic of China US$1.0billion Fixed Rate Notes 2001 Senior Co-lead Manager China Agricultural Bank US$140m Fixed Rated Notes 1999 Co-lead Manager Bank of China US$150m Fixed Rate Notes 1999 Co-lead Manager China Export-Import Bank US$200m Fixed Rate Notes 1999 Co-lead Manager Peoples Republic of China DM500m Fixed Rate Notes 1997

41 Contact Details BOC INTERNATIONAL (China) Limited Cynthia Wang
Fixed Income Tel: – Fax: – BOC INTERNATIONAL (China) Limited Room 705, Tower E1, Oriental Plaza, No.1, East Chang An Ave., Dong Cheng District, Beijing, , China Internet:


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