Bonds Oct 14

China taps bigger investor pool with benchmark bonds

Americans wooed at a time when spreads with Treasuries offer attractive lure to yield-starved investors  

China taps bigger investor pool with benchmark bonds
Chinese finance minister Liu Kun. Photo: AFP

(ATF) China is returning to the global bond market in what has become an annual event, to establish a benchmark for its hordes of corporate issuers that are tapping international investors.

This time the sovereign issuance is targeted at a bigger pool of investors and includes the longest-dated bonds China has issued in the hard-currency market.

Bankers close to the deal said China could be raising $6 billion via the sale of three-, five-, 10- and 30-year bonds, which will be sold to Reg S/144A investors. It is also the first 144A offering – a private placement offered in the US for domestic investors. A Reg S offering is a bond issued in the Eurobond market for international investors. The 30-year security issue is the longest tenor of bonds Beijing has offered.

“China has been tapping the USD bond market every year since 2017, and this year is a continuation of the trend,” said Wei-Liang Chang, DBS Macro Strategist. “There are a few reasons for China to issue USD bonds despite ample FX reserves."

DEBT MARKETS: China bonds the new global draw

The Chinese Ministry of Finance (MOF) has hired Bank of China, Bank of Communications, China Construction Bank, China International Capital Corporation, BofA Securities, Citigroup, Crédit Agricole, CTBC Bank, Deutsche Bank, Goldman Sachs, JP Morgan, Mizuho Securities and Standard Chartered Bank, as joint lead managers and joint nookrunners to conduct a series of meetings with potential investors.

The deal is expected to be priced as early as Wednesday, bankers close to the deal said.

While China doesn’t need the dollar funding given its hefty $3.143 trillion foreign exchange reserves, the reasons for the bond offering lay elsewhere.

“MOF USD bonds serve as a useful reference benchmark for the offshore Chinese USD bond market, and will facilitate Chinese corporate USD issuance,” said Chang, adding that a liquid supply of USD bonds in the market is helpful for gauging investor sentiment.

“Global investors will be keen to invest in Chinese USD bonds given their relatively lower risk and decent yields.”

China Bonds Bonds US economy Investors