China is moving forward with plans to issue its first sovereign bonds in US dollars since 2004 in a deal that would put a symbolic seal of approval on the booming offshore Asian debt market.
The Chinese Ministry of Finance was yesterday scheduled to meet with bankers in Beijing to discuss the sale, according to people familiar with the plans.
The deal is aimed for as soon as this month, said the people, who asked not to be named as the specifics have not been made public.
The ministry said in a statement that it would sell US$2 billion of notes.
While Beijing does not need to borrow offshore, with a domestic debt market that is now the world’s third-largest, its bonds would provide a new benchmark for pricing the country’s state-owned enterprises. A successful deal would pull down those borrowing costs and might fuel further sales after what has been record issuance this year.
Chinese investors have been eager to snap up dollar securities, and with the country’s borrowers obliging, the Asian dollar-bond market is effectively being transformed into a Chinese operation.
Within as few as three years, about 80 percent of the Asian market outside Japan is likely to be Chinese, according to Goldman Sachs Asset Management.
Strategists forecast that by then, its size will have surpassed US$1 trillion.
News on the plans comes little more than a week before a pivotal Chinese Communist Party leadership gathering, and underlines the government’s confidence that there will be strong demand, despite China’s two sovereign rating downgrades this year.
S&P Global Ratings cut China’s credit rating by one notch, following Moody’s Investors Service, which did the same in May.
“It will certainly have scarcity value and I imagine it will be snapped up pretty quickly,” said Geoff Lewis, Hong Kong-based senior strategist for Asia at Manulife Asset Management, of China’s sovereign bonds in an interview with Bloomberg Television.
“It’s a clear sign of China’s determination to move into the international financial markets” and play a role “commensurate with the size of its economy,” he added.
The ministry yesterday said that it would sell US$1 billion of five-year notes and the same amount of 10-year debt “soon.”
Most Asian dollar bonds nowadays are sold outside the US and China has not specified which rules will govern its sovereign issue, although the ministry did say the bonds would be listed on the Hong Kong Stock Exchange.
When Postal Savings Bank of China Co (中國郵政儲蓄銀行) sold US$7.25 billion of US dollar debt last month, only 3 percent went to non-Asians.
That deal was the biggest since a jumbo sale by Alibaba Group Holding Ltd (阿里巴巴) in 2014.
Anticipation of strong appetite for China’s new issue had already started reducing the premiums for Chinese issuers, strategists said last month.
As for the sovereign bonds themselves, South Korea’s offshore government debt is a key point of comparison, and tighter pricing than its Asian neighbor’s securities would be a further feather in China’s cap.
South Korean US dollar bonds due in September 2023, currently the closest to a five-year note, yield about 84 basis points over US Treasuries, data compiled by Bloomberg showed.
South Korea, which has a rating two steps above China’s, has notes due in January 2027 that trade 78 basis points over comparable Treasuries.
“We expect the small US$2 billion issuance of five-year and 10-year China sovereign issuance will quickly become a collector’s item, with a flat curve,” said Owen Gallimore, Singapore-based head of credit strategy at Australia and New Zealand Banking Group Ltd. “Initially the market will price at a discount to intra-regional peers such as [South] Korea.”
While both Moody’s and S&P flagged concerns over China’s continuing buildup of debt in their sovereign downgrades this year, there has been little impact on the bond market. Most of the debt is at the corporate and local authority level, and both have participated in the record dollar issuance this year.
Junk-rated property developers have been another notable source of supply.
With the growth of the Chinese offshore bond market, the country’s lenders have become increasingly competitive in the underwriting leagues.
Six of the 10 banks to be represented at the Beijing meeting yesterday are Chinese, said people familiar with the discussions.
Citigroup Inc, Deutsche Bank AG, HSBC Holdings PLC and Standard Chartered PLC are the four international firms to be represented, the people said.
State-owned lenders Agricultural Bank of China Ltd (中國農業銀行), Bank of China Ltd (中國銀行), Bank of Communications Co Ltd (交通銀行), China Construction Bank Corp (中國建設銀行) and Industrial & Commercial Bank of China Ltd (中國工商銀行), as well as China International Capital Corp Ltd (中金公司), are the six Chinese groups scheduled to be at the gathering, the people said.
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
RECORD-BREAKING: TSMC’s net profit last quarter beat market expectations by expanding 8.9% and it was the best first-quarter profit in the chipmaker’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which counts Nvidia Corp as a key customer, yesterday said that artificial intelligence (AI) server chip revenue is set to more than double this year from last year amid rising demand. The chipmaker expects the growth momentum to continue in the next five years with an annual compound growth rate of 50 percent, TSMC chief executive officer C.C. Wei (魏哲家) told investors yesterday. By 2028, AI chips’ contribution to revenue would climb to about 20 percent from a percentage in the low teens, Wei said. “Almost all the AI innovators are working with TSMC to address the
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”