CHINA'S Panda bond market will continue to face headwinds, but international issuers expect more stability in the onshore bond market that could revive demand for the Chinese renminbi-denominated debt.
Beijing’s tighter money transfer rules and regulations on their issuance have prevented companies to move forward with Panda bonds or bonds foreign entities issue in China to raise yuan. Issuance has been on a steep decline last year, but panellists at The Asset 12th Asian Bond Markets Summit believe a rebound in issuance is likely this year.
“We expect a rebound of Panda issuance this year,“ Weifeng Li, assistant to general manager, sovereign department at China Lianhe Credit Rating. He says government efforts to revisit policies around Panda bond issuance are encouraging signs.
Beijing has started to simplify Panda bond regulations for financial institutions and corporate issuers from countries that support its Belt and Road infrastructure programme. This opened opportunities for corporates and development banks to explore the market.
“We are looking to issue longer term Panda bonds,” says Flora Dai, treasury director at Air Liquide. Dai says the rules may require a bit more flexibility going forward to boost the market.
Leslie Maasdorp, vice president and chief financial officer at New Development Bank agrees: “We intend to tap the capital market again over the next two years.” He says close to 80% of the bank’s infrastructure projects are funded in renminbi. “Raising fund locally not only allows us to hedge FX risks but also help us secure a fixed rate,” he adds.
Maasdorp says that there remains a strong financing need in the local currency for multinational development banks. Smoother regulatory process for Panda bonds as well as a focus on credit quality could bolster issuance of the renminbi debt.
“There is a huge potential for more issuers to raise in renminbi. It’s very unusual that 98% of a market the size of China is largely domestic investor base,” he adds.
