Is sentiment towards Chinese entities on the turn? The establishment of a new US commercial paper programme by COFCO Capital Corp, a wholly-owned subsidiary of China National Cereals, Oils and Foodstuffs Import & Export Corp (COFCO), suggests that it might be. The programme, the largest to be launched by a Chinese company so far this year, is backed by a direct-pay letter of credit (LC) facility that was successfully syndicated to a 13-strong bank group and was over-subscribed by $18 million.

COFCO will use the proceeds from the commercial paper programme to finance its international trade. The borrower believes the deal’s real value lies in the message that it sends out to the banking sector about Chinese credit. “We found the recent transaction very encouraging and it should pave the road for other Chinese compflies to reach similar deals,” says Wu Xiao Hui, general manager, finance, at COFCO in Beijing. But, while it proves that Chinese deals can get done, the cost of the facility indicates that bank appetite for Chinese risk remains very weak.

The recent LC facility refinances a one- year deal signed last year. That transaction was priced at 7Obp, syndicated to a 20- strong group and much more heavily oversubscribed. The recent LC costs COFCO 125bp, with banks also demanding participation fees ranging from 1 5bp to 2Obp, something they did not seek last year. Bank of Tokyo-Mitsubishi, Dai-Ichi Kangyo Bank and Dresdner Bank were all absent from this year’s deal having participated last time around.

Remarks Ginger Cheung, assistant vice president at Bank of America in Hong Kong: “The pricing of this deal was completed on relatively attractive terms, with the top tier all-in price being 1.45%.” Maybe so, but the COFCO deal proves that Chinese credits still have quite a way to go before they are properly reinstated in the eyes of the international banking community.