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Saturday, 21 July 2018

Renminbi Bond

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Maybank took China’s Panda bond market to a new level in July, becoming the first foreign issuer to offer renminbi bonds via the newly launched Bond Connect platform.

The new trading link, which went live less than three weeks earlier, allowed Maybank to target both onshore and offshore investors for its Rmb1bn (US$148m) debut, accessing the widest possible investor pool for the securities.

The deal also reopened the onshore market for foreign issuers after China’s effort to reduce leverage in the financial sector led to an eight-month drought, and was the first Panda bond from the Association of Southeast Asian Nations (ASEAN).

The real significance, however, was in proving the value of the new trading link to both international issuers and investors, setting a precedent that is sure to become more valuable as China opens its domestic markets to the world.

Maybank seized a rare issue window in a volatile year on July 21, when onshore yields fell after liquidity injections from the People’s Bank of China, and priced the three-year notes at par to yield 4.6%, in the middle of an initial price range of 4%–5%.

While the bulk of orders came from onshore investors, Maybank also brought in offshore investors via Bond Connect, helping drive pricing as tight as possible.

Some potential foreign issuers had shelved their plans for Panda bonds amid concerns over the remittance of proceeds as China fought against capital outflows, but Maybank’s success in taking the majority of the proceeds offshore helped boost confidence in the format, and others soon followed.

The bank played a good hand with the PBoC, leveraging interest in China’s ambitious Belt and Road infrastructure initiative.

Malaysia, where about 21% of the population is ethnically Chinese, has close economic ties with China and has been an ardent supporter of Xi Jinping’s drive to build a new Silk Road trading route.

In November 2016, the two countries signed 30 memoranda of understanding worth about Rmb144bn, including a Rmb55bn East Coast Rail Line infrastructure project that will form part of a rail network linking Singapore to China as part of the Silk Road Economic Belt.

Maybank won clearance to take up to 70% of the proceeds out of the country for Belt and Road projects and to use the remaining 30% onshore, where it has four branches.

As its financial statements are based on the IFRS-compliant Malaysian reporting standards, Maybank provided a qualitative summary of differences between the Malaysian standards, IFRS and China GAAP.

This was Maybank’s inaugural issue off its Rmb6bn Panda bond programme approved by the PBoC.

China Development Bank was lead underwriter on the offering with HSBC Bank (China) as joint lead underwriter.

To see the digital version of this report, please click here

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