Chinese renminbi-denominated bonds, also known as Panda-bonds, are becoming more and more attractive to foreign banks after the accessing amount to the mainland China’s debt market of non-residents has been expanded with a volume of $10 trillion.
The program activated in July to gain access to the Bond Connect market between Hong Kong and China allowed foreign issuers to increase sales of panda bonds denominated in the mainland renminbi in a maximum of eight months. International banks have recently begun to receive permits to arrange bond placements in China, starting a competition with local underwriters that almost dominated the market. Foreign underwriters announced that the connection with panda-bond issuers would allow them to strengthen their positions.
“It makes sense for foreign entities to sell dim sum bonds as most of them convert yuan proceeds to other currencies such as U.S. dollar to lower the funding cost,” a debt capital market banker at a European bank in Hong Kong announced.
Panda bonds, which are competing with dim-shen bonds in offshore renminbi placed in Hong Kong, are in high demand amid foreign companies and sovereign issuers that expect to variegate financing and gain access to a wider range of investors.
Sales of panda bonds got a new record in 2016 when being confirmed at $18.3 billion (130 billion yuan), nine times higher than 2015 levels, and were forecasted to increase another 50 percent in 2017. At the beginning of this year, the sales figure was impressively reported being $7.73, according to data in the terminal Bloomberg. The leading underwriter is Bank of China Ltd., followed by Industrial & Commercial Bank of China Ltd. and China Citic Bank Corp. Ltd.
“The size of the panda bond market has been growing very quickly,” said Ying Gu, the bank’s emerging market strategist.
“China would like to see more diversity in the bond market,” Chinese President Xi Jinping said in an interview from Beijing. He also mentioned that onshore underwriting business would focus on helping foreign issuers sell panda bonds in China.