International credits selling Chinese bonds adds "a very interesting story to the mix," said Hsiung. Many will start by looking at Chinese government bonds, then move on to the big four banks and state-owned enterprises, before gradually exploring higher yielding opportunities. "When entering a new market, investors often start with well-known issuers with strong credit ratings," said Hsiung. For instance, a business like Daimler is well known by international investors, making it an easier investment decision than less familiar credits. For foreign investors, the Panda market allows onshore, renminbi exposure through companies that investors already know and are comfortable with. Some borrowers have issued renminbi-denominated bonds offshore, otherwise known as dim sum bonds, but those are few and far between, especially compared to the lucrative onshore market. "The market has definitely become more open and transparent," added Ko-Wei Hsiung, Associate Director, Debt Capital Markets, Asia-Pacific, Global Banking at HSBC, explaining how Panda bonds have opened up to outside investors. HSBC research forecasts that USD150 billion of foreign participation will flow into the onshore market over the next 20 months, thanks to bond index inclusion. The number of institutional investors registered under Bond Connect surged to 617 in February 2019, compared to 506 in December and 356 in June 2018. Nearly 1,200 foreign investors have access to China's bond markets, holding RMB1.73 trillion, according to the recent China Bond Market International Forum. "Issuers now include SSAs, banks and corporate issuers and the investor base has evolved to attract more and more international investor participation." "The Panda bond market continues to develop and internationalise," said Sean McNelis, Co-Head of Debt Capital Markets, Asia-Pacific, Global Banking at HSBC. But recently the investor base for the notes has become as internationalised as the issuers themselves, helped along by access through Bond Connect and other methods, as well as growing transparency. The first notes were sold in 2005 by the International Finance Corporation and the Asian Development Bank, but since then the market has blossomed to include deals from the likes of German carmakers Daimler and BMW, Singapore's United Overseas Bank and sovereigns like the Republic of Hungary and the Philippines.Īs the notes are sold domestically in China, they naturally attract primarily Chinese investors. Panda bonds are renminbi-denominated notes sold by a non-Chinese issuer in onshore China. As the market grows, it's become apparent just how international the product is, and what it means for China in a globalising world. The following article is written by Euromoney and sponsored by HSBC.Ĭhina's Panda bonds are an onshore product, offering international borrowers a way to tap domestic renminbi investors.
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