Panda bond is­suance more than dou­bles as rates fall

China Daily (Canada) - - BUSINESS - By JIANG XUEQING jiangx­ue­qing@ chi­nadaily.com.cn

Panda bond is­suance surged to 29 bil­lion yuan ($4.33 bil­lion) in the year to date in 2016, com­pared with 12 bil­lion yuan in all of 2015, said a JPMor­gan Chase & Co re­port.

The large in­crease in the is­suance of Panda bonds, yuan-de­nom­i­nated bonds sold in the on­shore mar­ket by a non-Chi­nese is­suer, was mainly driven by cheaper fund­ing costs. A typ­i­cal cor­po­rate is­suer with BBB+ rat­ing could re­duce its fi­nanc­ing costs by around 80 ba­sis points by is­su­ing a Panda bond and then swap­ping China’s on­shore cur­rency into dol­lars, com­pared with is­su­ing dol­lar bonds, the re­port said.

“Dol­lar/yuan cross-cur­rency swap rates have re­mained at rel­a­tively high lev­els due to in­vestors’ con­cerns about the yuan de­pre­ci­a­tion, which gives Panda bond is­suers more at­trac­tive yields to swap their yuan into dol­lars,” said Gu Ying, Hong Kong-based emerg­ing mar­kets strate­gist at JPMor­gan.

“More­over, the neg­a­tive out­look on the yuan also causes some for­eign is­suers to raise yuan di­rectly via Panda bonds to fi­nance their in­vest­ments in China, with the aim of elim­i­nat­ing the for­eign ex­change mis­match risk.”

Cor­po­rates rep­re­sent 65 per­cent of is­suers in the Panda bond mar­ket, fol­lowed by for­eign gov­ern­ments (14 per­cent), fi­nan­cial in­sti­tu­tions (12 per­cent) and supra­na­tional is­suers (9 per­cent).

Dur­ing the first six months of this year, In­dus­trial and Com­mer­cial Bank of China Ltd, the na­tion’s largest Sta­te­owned com­mer­cial lender by as­sets, un­der­wrote more than 5 bil­lion yuan of Panda bonds for over­seas com­pa­nies, in­clud­ing the is­suance of Panda bonds worth 4 bil­lion yuan for Daim­ler Group in pri­vate place­ment.

But many of the cor­po­rate is­suers are over­seas-in­cor­po­rated Chi­nese com­pa­nies. Real for­eign bor­row­ers still need to over­come hur­dles such as the dis­crep­ancy in ac­count­ing rules, the lack of of­fi­cial guid­ance on mov­ing funds raised from Panda bonds off­shore, and the lack of trans­parency in ap­proval pro­ce­dures, ac­cord­ing to the re­port.

“A well-de­vel­oped Panda bond mar­ket is cru­cial to the open­ing of the Chi­nese on­shore bond mar­ket,” Gu said.

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