HK ‘can be offshore mainland bond hub’
Hong Kong can offer a hub for offshore mainland bonds, helping to establish a marketplace for transacting the debt issued by corporate borrowers, the city’s former stock exchange chief said in his submission to the top national advisory body.
An over-the-counter market could ensure the transparency and timeliness of disclosures by issuers, where the requirements of Hong Kong and mainland regulators could be consolidated to bring order to the “pervasive” chaos of the current system, the Securities Times newspaper reported, citing a proposal by Charles Li Xiaojia to the Chinese People’s Political Consultative Conference (CPPCC).
“It can start with Chineseissued dollar bonds, gradually expanding to other Asian bonds, and form a [new regional] bond trading centre,” said Li, the chief executive of Hong Kong’s stock exchange from 2010 to 2021.
Such a market had strategic meaning for the internationalisation of the nation’s bond market, he said in his submission as a delegate to the CPPCC, the legislature’s advisory body.
The proposal by Li, who created the cross-border bond and stock investment channels with the mainland during his tenure as exchange chief, comes as the nation’s corporate debt hogs the limelight with a spate of highstakes and high-profile defaults.
This year is poised to mark another record for missed payments, as China Evergrande Group, Shimao Group Holdings and a string of highly leveraged property developers run short of cash to meet a total of US$118 billion in payment obligations.
Beijing launched the southbound leg of the so-called Bond Connect investment channel last September, which allows onshore mainland investors to trade in the offshore bond market. The daily quota was set at 20 billion yuan (HK$24.8 billion) and the annual quota at 500 billion yuan.
The default rate of the mainland’s high-yield bond issues may soar to 45 per cent this year from last year’s 38 per cent, according to a forecast by Credit Suisse.
Ten of the 15 issuers that missed their offshore bond payments last year were developers, pushing the offshore corporate default rate to 2.8 per cent from 2.5 per cent in 2020, according to Fitch Ratings.