BEIJING, Sept. 23 (Xinhua) -- Panda bond issuance in China has recorded rapid expansion so far this year, as lower financing costs and a steadily opening onshore market draw growing interest from global issuers.
As of Sept. 17, the issuance of the Chinese currency renminbi-denominated debt securities has surpassed 240 billion yuan (about 35.6 billion U.S. dollars) across 135 issues, up 81 percent and 65 percent, respectively, from a year earlier, according to Shanghai-based data provider Wind Information.
KEY PLAYERS DIVE IN
Such bonds are issued in China's onshore market by overseas entities such as sovereign governments, international financial institutions and multinational companies, with principal and interest paid in renminbi.
This year, a growing number of sovereign issuers have driven growth in panda bond issuance. Slovenia, Pakistan, Kazakhstan and Indonesia issued the bonds for the first time this year, while Brazil is expected to become the first Latin American sovereign issuer.
Foreign financial institutions have also joined the wave. Deutsche Bank has issued 9 billion yuan of panda bonds so far this year, while BNP Paribas issued twice this year, raising 11 billion yuan.
In August, UBS Group issued a 2-billion-yuan, five-year panda bond with a coupon rate of 1.78 percent, the first by a Swiss financial institution, drawing subscriptions tripling the offer size.
According to UBS, the transaction comes amid continued growth in China's panda bond market.
Accessing China's deep and increasingly sophisticated onshore bond market further diversified UBS's funding sources and enhanced the efficiency and flexibility of its overall funding profile, said Chris Chadie, UBS' head of issuance and funding strategy.
Other institutions, such as the New Development Bank, Asian Infrastructure Investment Bank and Asian Development Bank, have also used panda bonds for financing this year, regarding China's onshore bond market as stable and persistently attractive amid global market volatility.
LOWER COSTS, SOUND RETURNS, EASED POLICIES
Lower renminbi financing costs served as the main reason for the record-high panda bond issuance this year.
According to Zhang Jun, chief economist at China Galaxy Securities, major foreign banks issue panda bonds at rates of roughly 1.7 percent to 2.2 percent, while borrowing the same amount in the U.S. dollar market costs 4.5 percent to 5.5 percent.
Zhang noted that in recent years, China has continued to improve the registration and issuance mechanism for panda bonds, relaxed relevant rules on the management of proceeds, and clarified that proceeds can be remitted abroad for use.
"This makes fund use more flexible and strengthens overseas institutions' confidence in the steady development of the panda bond market," Zhang explained.
To date, cumulative panda bond issuance has exceeded 1.3 trillion yuan, with issuers spanning 26 countries and regions across the world. The People's Bank of China (PBOC), China's central bank, said it will support more eligible overseas entities in issuing such bonds.
The international institutions' panda bond issuance demonstrated their recognition of China's institutional environment, development prospects and the renminbi, said Zou Lan, PBOC's deputy governor.
Panda bonds, while helping expand global investors' channels for allocating renminbi assets, also foster a sustainable ecosystem for renminbi use, Zou noted.
Buyers have also shown strong interest in panda bonds because of their safety and stable returns, with subscriptions for some issues reaching more than five times their issuance size.
"Panda bonds have gained broad recognition among domestic investors, while overseas institutional investors, thanks to their better understanding of issuers, also regard panda bonds as a major investment and trading instrument," Zou said.
RMB INTERNATIONALIZATION
Analysts say the booming panda bond market is also creating a positive interplay with the yuan's internationalization.
Wen Bin, chief economist at China Minsheng Bank, noted that more companies are beginning to include the renminbi in global treasury management and use it for cross-border settlement, investment projects and other purposes.
This helps foster sustainable cross-border circulation of the renminbi and supports the long-term, steady progress in its internationalization, he said.
Zhang noted that with easier overseas participation in panda bond issuance and trading and steady renminbi internationalization, such bonds are expected to achieve new breakthroughs in scale, innovation, and investor breadth, injecting lasting momentum into China's high-level financial opening-up. ■
