STRONG OVERSEAS DEMAND FOR €4b CHINESE BONDS

Issuance, the biggest of its kind in Asia this year, follows last month’s US$4b deal, underlining Beijing’s push to further develop offshore market

Investors have snapped up €4 billion (HK$35.9 billion) of bonds issued by China’s Ministry of Finance, attracting an order book more than four times the original size made available to them in what is the biggest eurodenominated bond issuance in the Asia-Pacific this year.

It is also Beijing’s third annual issuance since it restarted its sovereign euro bond programme in 2019. Before that, China last sold a €1 billion issue in 2004.

This week’s issuance also came on the heels of a US$4 billion bond it sold just last month, which underlined Beijing’s commitment to further develop its offshore bond market, bankers said.

Sold in three tranches comprising three-year, seven-year and 12-year bonds, the €4 billion notes attracted investors primarily from Europe, the Middle East and Africa, bankers said. The issuance attracted bids from banks, sovereign supranational agencies, asset managers and insurance firms, they added.

“The supply of eurodenominated bonds out of China is relatively scarce as compared to that of the US dollar,” said Christophe Cretot, Asia-Pacific head of debt origination and advisory at Credit Agricole CIB, one of the bookrunners for the deal.

“This effectively lays the ground for other Chinese issuers to benefit from a bigger pocket of demand [from euro-based investors] in the future.”

The €1.5 billion three-year tranche was sold at a negative yield of minus 0.192 per cent, which meant investors could incur a loss if they held this bond to maturity. That still compares favourably to Germany’s threeyear sovereign bond yield of minus 0.73 per cent.

“Despite the three-year tranche being issued at a negative yield, its bond yield still has a 50basis-point premium compared to the German bond of the same maturity, and therefore is still attractive for euro-based investors,” said Zhang Xing, managing director and Hong Kong head of fixed income and investment banking at China International Capital Corporation, a joint lead manager of the deal.

The €1.5 billion seven-year bond was issued at 0.216 per cent, while the €1 billion 12-year note was priced at 0.759 per cent, bankers said.

By maintaining its presence in the bond market, bankers said the Ministry of Finance was deepening and expanding its connection with the investor base, as seen by the fact that new investors had bid for this week’s issuance.

“Through the issuance, the ministry can also maintain its dialogue with international investors and convey to them the Chinese economy has been steadily recovering from the Covid-19 pandemic,” Zhang said.

Beijing has set a target economic growth rate of “above” 6 per cent for this year.

With such regular annual bond issuances at various tenors, the government had built a comprehensive and liquid fundraising benchmark for other Chinese issuers, such as companies, to tap the euro bond market, bankers said.

For the year to date, Chinese companies have raised an equivalent of US$7.5 billion in euro bonds over 18 issuances, with the value up by 40 per cent from a year ago, Refinitiv data shows.

The supply of eurodenominated bonds out of China is relatively scarce CHRISTOPHE CRETOT,

CREDIT AGRICOLE C.I.B.