* Foreign issuers hold back in bearish market
By Ina Zhou
HONG KONG, May 22 (IFR) - China's efforts to deleverage its
financial system have dealt a serious blow to the growth of the
Panda bonds market.
Several foreign issuers have delayed their plans to sell
bonds in the onshore renminbi market amid an extended liquidity
crunch that began towards the end of last year.
Higher yields and weak investor appetite have dashed plans
for high-profile Panda deals to champion Beijing's Belt and Road
Summit, which concluded on May 15.
"We had worked hard on preparing a few high-quality Panda
bond issues alongside the Belt and Road Summit, but,
unfortunately, none of those deals were able to float," said a
source close to the mainland regulators.
"Pricing was the biggest obstacle."
Panda bonds often carry heavy political significance, as
with recent issues from National Bank of Canada and the
Republic of Korea, which came shortly after Chinese
Premier Li Keqiang’s visits to the two countries.
Yet, no Panda deals were announced or launched alongside the
Summit to promote Beijing's new Silk Road initiative, even
though around 30 heads of state attended.
The Republic of Hungary approached some Chinese
investors in late April for a proposed offering of 2 billion
yuan ($290 million) three-year Panda bonds, according to market
Around the same time, they said, Republic of Poland
also talked to investors tentatively about a return
to the Panda market, after a 3 billion yuan three-year trade in
October 2016. Poland is rumoured to be looking to raise another
3 billion yuan from a sale of three-year notes.
Bank of China and HSBC arranged meetings for both Hungary
and Poland. Hungary's president and Poland's prime minister both
attended the Beijing summit. Neither deal, however, has made it
"Market conditions have turned so bad that even sovereign
issuers are unwilling to come to the Panda market now," said a
banker away from the two deals, noting that sovereigns can
usually line up more support from big Chinese banks than
Excluding overseas incorporated Chinese companies, no
foreign issuer has done a public offering of Panda bonds for
more than six months, since National Bank of Canada printed 3.5
billion yuan three-year such notes at 3.05 percent in early
Onshore liquidity has worsened since then. The yield on
10-year Chinese treasury notes had risen about 90bp to 3.63
percent last Thursday on liquidity tightening as authorities
cracked down on shadow banking and risky financial practices.
On May 10, the yield on the 10-year Chinese treasury bond
peaked at 3.71 percent, the highest since December 2014.
This surge in funding costs saw a spate of cancellations in
the mainland debt market. In April alone, domestic offerings of
140 billion yuan, including a 1 billion yuan Panda deal from
Hong Kong-incorporated Wing Lung Bank, were
"The pricing doesn't look attractive to issuers. Good
foreign names can obtain cheaper funding offshore, or, if they
want onshore renminbi funding, it is also not difficult for them
to get cheaper loans from Chinese banks," said a DCM banker
working on Panda bonds.
CICC noted in a report published on May 12 that yields on
five-year AAA rated MTNs had risen to over 5 percent, surpassing
the policy interest rate for five-year loans, which was at 4.75
percent. "Such a phenomenon is unprecedented," said CICC.
The private placement segment has offered some respite for
foreign issuers willing to offer higher yields. Two foreign
names have bucked the trend, completing three trades in total
Russian aluminium producer UC Rusal made its Panda
bond debut in the Shanghai Stock Exchange market in March,
raising 1 billion yuan from three-year non-call two notes at 5.5
percent in a tough deal. Rusal has been heard to be planning a
comeback with a second offering soon.
Last week, Germany's Daimler returned to the
Panda market for the second time this year, raising 4 billion
yuan from a dual-tranche private placement in the interbank
Daimler paid 5.18 percent for a 3 billion yuan one-year
tranche, 58bp higher than its last trade of the same tenor
launched in mid-March. A 1 billion yuan three-year tranche in
its latest trade was priced at 5.3 percent.
Market participants suggested that Daimler's enthusiasm for
Panda bonds, despite the rising yields, could be explained if
the proceeds were used to grant auto loans.
"If Daimler uses the proceeds for its auto-financing
business in China, then the funding cost (of Panda bonds) is
quite acceptable given that interest rates on auto loans are
usually at 8–10 percent," said an institutional investor.
Despite the unfavourable environment, some bankers still aim
to launch one or two offerings of Panda bonds from SSAs
(sovereigns, supranationals and agencies) towards the end of the
"The market is tough and can grow tougher at the end of this
month," said a syndicate banker at a foreign bank. "However, a
small offering of 1 billion yuan or 2 billion yuan from a
high-quality SSA is still possible this month, if strongly
supported by relationship banks."
(Reporting by Ina Zhou; Editing by Daniel Stanton and Steve