Thanks to conducive market and regulatory conditions, two German auto-manufacturers, Daimler and BMW, as well as Singapore's United Overseas Bank (UOB), have joined a wave of companies, banks and nations to issue Panda bonds.
Panda bonds are renminbi-denominated bonds issued in China by non-Chinese firms.
On Wednesday, Daimler priced a 3-year Rmb1 billion ($148.8 million) Panda bond at par to yield 3.78%. Proceeds will be used for general corporate purposes. The arranger and manager is Standard Chartered Bank.
The cost of printing Panda bonds has fallen in recent months. The 3-year Rmb1 billion Panda bond issued by Daimler in August last year, for example, priced 72 basis points wider at 4.5%.
After a few months of concerted easing from the Chinese government, China’s 7-day interbank rate fell to 2.4% in January, down from 2.9% in June last year. “The wave of easing and lower interest rates is benefiting all types of bond issuers,” noted a February report from HSBC.
Another reason that foreign entities are tapping China’s onshore market is loosening renminbi liquidity.
Daimler (A2/A/A-) issued five Panda bonds totalling Rmb10 billion last year. The Stuttgart-headquartered firm sold its first Panda bond in 2014.
Meanwhile, BMW (A1/A+) has sold its maiden Panda bond. On March 6, the Munich-based car manufacturer priced its 3-year Rmb3 billion Panda bond at par to yield 4%. This was within the 3.6% to 4.2% guidance. Bank of China was lead underwriter, with Citic Securities as joint lead underwriter, and HSBC and Standard Chartered as international advisers and sub-underwriters.
China, the world’s biggest buyer and producer of cars, is also the largest market for BMW and Daimler.
The two companies have invested heavily in China. In October last year, BMW said it would spend €3.6 billion ($4.1 billion) to increase its stake in a Chinese joint venture with Brilliance China Automotive Holding to 75% from 50%. And the following month, Daimler announced that it would invest more than Rmb1.1 billion to create its second research and development Tech Center in Beijing. Operations are expected to start next year.
On March 13, UOB priced the first Panda bond from Singapore at 3.49%, one of the lowest Panda coupons to date. UOB’s 3-year Rmb2 billion Panda was 2.7 times oversubscribed. Asset managers and commercial bank investors across Asia took the paper, with roughly a third placed onshore and two-thirds to international offshore investors.
Bank of China was lead underwriter and lead bookrunner, with China Securities and Standard Chartered Bank as joint lead underwriters and joint bookrunners.
“One recent trend we have noticed is the increased participation by offshore investors by means such as Bond Connect (the Hong Kong platform to trade Chinese bonds),” said a spokesman from HSBC.
The increased price tension created by this new liquidity has led to a better overall result for issuers, making them more willing to use Panda bonds as a funding tool. “This is especially noticeable during recent trades such as New Development Bank and UOB,” he said.
In February, New Development Bank, a development bank of Brazil, Russia, India, China and South Africa (BRICS), issued a Rmb2 billion 3-year Panda at 3% and a Rmb1 billion 5-year at 3.32%.
FRIENDLY RULES
The motivations for UOB's and the New Development Bank's issuance include the positive implications of recent regulations, lawyers at the Baker McKenzie FenXun joint operation in Shanghai explained.
In September last year, the People's Bank of China (PBOC) and China’s Ministry of Finance published “Interim Measures for the Administration of Bond Issuances by Overseas Institutions in the National Inter-bank Bond Market”. And at the start of February, the National Association of Financial Market Institutional Investors (NAFMII), which self-regulates China’s financial industry, published trial guidelines on debt financing instruments of overseas non-financial enterprises.
These have clarified the criteria for Panda bond issuers, requirements on information disclosure, and issues of settlement and investor protection.
The NAFMII guidelines clearly stipulate that proceeds from Panda bonds can be used offshore. Recently, Chinese regulators encouraged bond proceeds to be used offshore in renminbi, which could, to some extent, be reflected in the approved use of proceeds from the Panda bonds issued by UOB and the New Development Bank, the lawyers said.
SOVEREIGNS
For sovereign issuers, Panda bonds show that the Chinese currency is internationalising towards a global reserve currency. “They are also a way to foster relationships with the Chinese government,” the HSBC spokesman said.
In February, Malaysian Finance Minister Lim Guan Eng announced that his country had received an offer to issue Panda bonds from China Construction Bank, one of the Big Four Chinese state-owned banks.
In mid-March, Malaysia printed a generously oversubscribed ¥200 billion ($1.8 billion) Samurai bond. The Malaysian government is playing a delicate balancing game in maintaining good relations with China and Japan, which have tense relations with each other.
According to reports from Chinese state news agency Xinhua, Laos, which is close to China, is considering a Panda issue.
And in mid-February, the Ministry of Finance of Pakistan, a long-time ally of China, announced its intentions to issue a Panda and invited financial institutions to apply to be financial advisers and lead managers for the deal.
