As Vice-Premier Ma Kai and Chancellor of the Exchequer George Osborne meet in Beijing as part of the 7th UK-China Economic and Financial Dialogue, a joint ICMA-NAFMII working group, which brings together experts from financial institutions in China and the UK to share expertise on processes, practices, and the associated market infrastructure in debt capital markets, has issued its first report: ‘Practices and procedures in the Chinese and international primary debt capital markets’.
The report is issued in the 2014 6th UK-China Economic and Financial Dialogue, Vice-Premier Ma Kai and Chancellor of the Exchequer George Osborne agreed that further cooperation between UK and Chinese financial market participants would benefit the development of capital markets, and welcomed the creation of a private sector working group chaired by the International Capital Market Association (ICMA) and the National Association of Financial Market Institutional Investors of China (NAFMII).
ICMA Chief Executive Martin Scheck said: “As debt capital markets become increasingly globalised, mutual understanding of how China’s interbank bond market and the international markets operate at a technical level is vital, a fact recognized by the UK-China Financial Dialogue. This report is an important further step towards achieving this. It is the result of productive co-operation and information exchange between international and Chinese bond market experts participating in a joint ICMA-NAFMII working group, formed as a result of the 2014 intergovernmental UK-China Economic and Financial Dialogue.”
This first report by the working group is intended to give policymakers and market practitioners a useful outline of the way in which bonds are sold through the primary capital markets in both the cross-border international debt market and the onshore Chinese interbank bond market.
This report covers bond issuances in two significant market segments: the international investment grade public markets (with their prevailing European-style book built syndications except where otherwise stated) ; and the Chinese onshore interbank market, which is China’s over-the-counter market, and accounts for more than 90% of the total onshore market by new issuance and trading volume. The analysis covers three important aspects of the way bonds are issued in the international and Chinese bond markets: due diligence, disclosure, and book building.
As indicated in the report, transferable debt securities are one of a range of means, alongside equity share capital, bank lending, and other methods, by which companies fund their business needs and their expansion. The bond markets are also important to governments to maintain sustainable and balanced growth, fund infrastructure projects, and respond to climate change.
International bond offerings must take into account various statutes, regulations, and court rulings from the European Union, United States and other jurisdictions that may relate to the issuer, underwriters, eventual investors, and any exchange/ listing venues. At the same time, over the last few decades a significant body of market practice has evolved to enable more efficient transactions. The Chinese interbank bond market, which has developed more quickly and recently, is governed by more detailed rules; however these rules continue to evolve, taking into account the local characteristics of the Chinese capital markets while influenced and informed by practices in other global markets.
Based on feedback from various market practitioners obtained with the assistance of several ICMA and NAFMII members, this report is focused on processes and practices in the debt primary markets – i.e., the market in which bonds are initially offered to investors before they begin to trade freely among investors and dealers in the secondary market.
The ICMA-NAFMII working group will continue to explore ways in which common market practices can help to make the debt markets more efficient, resilient, and well-governed.
(Hongxu Wei)
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