Domestic urban investment companies having not self-realized fundraising arouses a wave of bond issuance in overseas markets.
U.S. dollar bonds issued by urban investment companies soar
On one side, the U.S. dollar constantly goes up, and on the other side, enterprises continuously issue U.S. dollar bonds in foreign markets for fundraising. This seems to be nonsense in logic, but it is a true story in the market recently.
Since the beginning of November, governmental financing platforms have remarkably increased to issue offshore U.S. dollar bonds in Hong Kong, Signore as well as other regions and countries, and some fundraising rates are even higher than those in mainland of China.
Since the beginning of 2016, local urban investment companies have totaled at 40 overseas bond issuances for 11.64 U.S. dollars, nearly double to that scale at the end of last year, based on incomplete statistics of SSN journalist. Urban investment companies issued 6 and 19 waves of U.S. dollar bonds with an amount of around 2.4 billion and 6.9 billion U.S. dollars in 2014 and 2015 respectively, the data also shows. Just from the beginning of November, there are 14 waves of U.S. dollar bonds issued by urban investment companies, totaling at 3.49 billion U.S. dollars.
National Development and Reform Commission opens the supervision on inland enterprises’ direct bond issuance, lowers the threshold and eases the requirement for them to issue overseas bonds, and allows them to issue bonds with rapid pace; under such background, urban investment companies intensify the strength to issue overseas bonds in recent years, with purposes of expanding financing channel, making financing flexible, improving international image, developing foreign businesses and etc., Sun Binbin, chief analysis for fixed-income business at TF Securities, believed.
However, with strong market expectation for U.S. dollar’s rate hike, it seems to be irrational that inland enterprises issue more U.S. dollar bonds. Uncertainties of inland financing environment pushes urban investment companies to positively expand the market-oriented financing channels in foreign countries in window period, Zhong Wenquan indicated in the annual credit risk meeting of Moody recently.
Investors in overseas press conference for urban investment bonds wonder why urban investment companies carry out fundraising in foreign markets when RMB is depreciating, Zhong said. Besides the mentioned reason, these companies may face financing pressure themselves. Therefore, they are likely to issue U.S. dollar bonds irrespective of costs.
There are too many inland companies waiting for bond issuance, which also pushes urban investment companies to issue more U.S. dollar bonds, and regulators’ tightening capital restriction on enterprises’ overseas direct investment will also promote them having deployment in foreign businesses to issue offshore bonds, according to some analysts.
The U.S. dollar bonds issued by urban investment companies also attract overseas investors’ attention. Referring to issuance situation, many overseas urban investment bonds have achieved several times of subscription.
The U.S. dollar bonds issued by two urban investment companies, Zhuzhou Changfa and Guangxi Transportation Investment, have gained five to six times of subscription, as overseas investors are still interested in bonds issued by urban investment companies, especially those with investment grade, Zeng Huisi, vice managing director of public project & infrastructure financing department at Moody, pointed out.
In terms of 3-yr bond of 300 million U.S. dollars issued by Wuhan Metro Group in November, its book rate is 2.375 percent, and the final subscription is around 13 times of issuance, data shows.
But Zhong also mentioned that the so-called overseas investors are mostly subsidiaries located in foreign countries now under Chinese-funded enterprises; from their view, inland and foreign bonds have yield rate of 4 percent and 3 percent respectively, but due to U.S. dollar’s appreciation, the yield rate of U.S. dollar based assets is a little higher.
Additionally, the rating on overseas urban investment bonds is also worthy of attention, some rating institutions carry out ratings based on strength of local government behind the urban investment companies. Such rating rule will allow some overseas urban investment bonds, which are not highly qualified, to still gain higher ratings, insider told the journalist.
Zhong said, companies with platform to issue overseas bonds should not be given over-high investment rating, as along with the changing policy environment and the possibility that local debt swaps will end in next years, it is difficult to determine whether local governments will be capable to maintain the said investment ratings at that time.
Ratings for urban investment bonds should not simply base on “up-to-down” system but also on fundamental factor of issuers and bonds themselves, so that to make the rating operation become more objective, the said insider also expressed.
Translated by Jelly Yi
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