Baidu Inc (ADR) (NASDAQ:BIDU) is planning to sell five-year debt at about 150 basis points more than U.S. Treasury bonds, or around 3.1%, according to a term sheet.

Baidu

Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) are joint book runners for the deal.

Benchmark-size offering

The owner of China’s biggest Internet search engine is selling a benchmark-sized U.S. dollar-denominated bond, according to a term sheet seen by the Wall Street Journal Wednesday.

A benchmark-size offering would generally mean at least $500 million, but the exact size remains undetermined. The Chinese search company is rated at A3 and A by the Moody’s and Fitch ratings agencies, respectively while the bonds will be sold to international investors including in the U.S. as the offer is registered with the Securities and Exchange Commission.

Drop in yield premium

The yield premium on Chinese dollar bonds dropped to 323 basis points this week after a May 30 government statement announcing “targeted” reserve-requirement-ratio cuts for certain banks and small companies, according to JPMorgan Chase & Co. indexes.

Spreads for corporate borrowers in the world’s largest economy had already narrowed 21 basis points last week, the most since the five days ended July 12, as the government takes steps to safeguard growth.

According to Bloomberg prices, spreads on Baidu Inc (ADR) (NASDAQ:BIDU)’s $1 billion of 2018 debentures, its biggest dollar bond outstanding, tightened by 21.6 basis points this year to 127.8 bp more than Treasuries as of yesterday.

Bond sales by Chinese companies plummeted 73% in May from the previous month to just $5.55 billion, according to data compiled by Bloomberg.

Surge in onshore corporate bond market

Over the past few years, China’s onshore corporate bond market has surged aggressively, outperforming overall credit growth across the economy. Corporate bonds expanded to 8.7 trillion renminbi as of January, or around $1.4 trillion at current exchange rates, more than the 800 million renminbi totaled in 2007, based on data from Bank of America’s Merrill Lynch.

Compared to major overseas market, the Chinese bond market is still in the developing stages, but China’s corporate sector has taken on debt more rapidly than households or local governments.