Korea OK’d to issue panda bondsChina has approved Korea as the first issuer of sovereign panda bonds, another step in the opening up of its domestic economy after the International Monetary Fund added the yuan to its reserves basket.
Korea is registered at the National Association of Financial Market Institutional Investors to sell 3 billion yuan ($467 million) of onshore local-currency notes, according to a statement posted on the People’s Bank of China website on Tuesday. The Canadian province of British Columbia was registered last month to sell 6 billion yuan of the debt. Corporate panda issuance has risen to 7 billion yuan in 2015, more than the total of 6 billion yuan sold over the previous 10 years, data compiled by Bloomberg show.
“Foreign investors are familiar with the issuers of panda bonds, so the development of the market will help attract them to China’s onshore market,” said Ivan Chung, head of Greater China credit research and analysis at Moody’s Investors Service.
“The yuan’s inclusion in the Special Drawing Rights basket will speed up the opening and connection between the local and overseas markets.”
Chinese authorities have stepped up approval of panda sales this year in an effort to diversify issuers and attract foreign investors as they sought reserve currency status, while six- interest-rate cuts over the past 12 months have pushed down onshore borrowing costs. Export-Import Bank of Korea and Russia’s Vnesheconombank are readying corporate panda offers and Russia and Indonesia may follow Korea with sovereign sales in 2016.
The yield on China’s government bonds due October 2025 rose one basis point to 3.05 percent as of 12:20 p.m. in Shanghai, according to National Interbank Funding Center prices. That’s lower than the 3.48 percent yield on similar-maturity sovereign notes sold in Hong Kong, known as Dim Sum debt.
Korea is holding a roadshow to meet investors in Shanghai and Beijing this week, according to an emailed statement from the nation’s finance ministry. The timing of the sale will be decided after the roadshow and will be subject to market conditions, the ministry said in the statement.
Barclays PLC and Deutsche Bank AG predict the panda bond market, which is still just a fraction of the size of the 278 billion yuan pool of offshore yuan bonds, will expand further next year as China opens up its domestic economy to foreign investors.
Panda bond issuance is reviewed by Chinese authorities on a case-by-case basis as there are no public regulations pertaining to them, according to BOCI Securities Limited. BLOOMBERG