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Gross sales of cross-border debt denominated in renminbi have boomed this yr, as comparatively low yields in China’s bond market increase Beijing’s drive to extend the worldwide footprint of its foreign money.
Gross sales of renminbi-denominated “panda” bonds by overseas issuers in China have risen to Rmb75bn up to now in 2023 — already surpassing the full-year document set in 2021.
Issuance of renminbi-denominated “dim sum” bonds in Hong Kong can be at a brand new excessive over the identical interval, having topped Rmb320bn, in line with information from Bloomberg and Chinese language information supplier Wind.
That takes the worth of cross-border renminbi issuance to almost Rmb400bn ($55bn), up greater than a fifth from final August and doubtlessly on observe to prime document full-year gross sales of Rmb466bn from 2022.
Bankers and merchants stated this yr’s rush had been facilitated by rising expectations that US rates of interest would keep greater for longer whereas Chinese language charges would stay comparatively depressed as Beijing sought to bolster a shaky financial restoration.
It has benefited each the so-called panda market, which connects overseas issuers to a largely Chinese language home investor base, and the extra established dim sum market, usually utilized by Chinese language debtors to faucet overseas capital.
“Onshore funding prices are cheaper than offshore, even on an after-swap foundation for the greenback,” stated Clifford Lee, world head of mounted revenue at DBS, referring to foreign money swaps that enable buyers to trade two currencies for a set interval earlier than swapping them again.
Cross-border gross sales of renminbi debt started to choose up considerably final yr as charge rises by the US Federal Reserve pushed yields on greenback bonds above their renminbi counterparts, making the latter a supply of comparatively low-cost financing.
The rise in panda bond gross sales has additionally been boosted by regulatory modifications that took impact initially of this yr permitting issuers to take the funds raised out of China — albeit with official permission. These efforts have attracted extra overseas corporations, stated Lee, whose group has run renminbi bond offers in China’s onshore market this yr for Mercedes-Benz and Crédit Agricole, amongst others.
Policymakers’ current help for the renminbi has additionally helped gradual depreciation in opposition to the greenback and encourage additional issuance by overseas corporates who had grown cautious that the funds they raised may fall in worth. However analysts warned that authorities would hold an eye fixed out for any affect on the trade charge.
“Whereas this can be excellent news for renminbi internationalisation, the affect on the foreign money is blended,” stated Gary Ng, senior economist at Natixis in Hong Kong. “If companies swap the quantity issued into different currencies, it may apply extra downward stress on the renminbi as a substitute.”
A Shanghai-based banker at one European financial institution stated some overseas issuers of panda bonds had been pressured to supply charges that have been greater than their native counterparts, “as a result of they often don’t have a lot of a credit score line onshore, so it’s arduous for home banks to recognise their creditworthiness”.
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