Deutsche Bank has priced its first “panda bond”, raising Rmb1bn ($143mn) in China’s onshore renminbi debt market in the first such transaction since Beijing streamlined regulations to encourage greater issuance by foreign companies.
The Chinese currency bond from the German lender, which matures in January 2026, will trade on China’s interbank bond market and carries a coupon of 3.1 per cent, according to a term sheet seen by the Financial Times.
The Deutsche bond is the first issued under new rules for renminbi debt issuance by foreign entities announced late last year by the People’s Bank of China and the State Administration of Foreign Exchange, which permit proceeds raised domestically in China to be used offshore for the first time.
“We are very pleased to bring this transaction to the market,” said Sam Fischer, head of onshore China debt capital markets at Deutsche.
Fischer said investors in the bond included a mix of domestic Chinese banks and the mainland branches of foreign lenders. Proceeds will be used for general group funding purposes.
The new reforms, which took effect on January 1, also unify issuance rules across China’s bond markets, streamline registration and account opening for issuers, and allow issuers to engage in derivatives trading with local financial groups to mitigate foreign exchange risk.
One banker in China with a European lender said that with local interest rates now below most other big markets, the onshore market had “become attractive to foreign issuers”.
“Fed hikes and geopolitical tensions are complicating global markets,” the banker said, “whereas China offers a relatively stable environment for fundraising.”
Last year, six foreign issuers including Mercedes-Benz and BMW issued a total of Rmb28.6bn in panda bonds, carrying an average coupon of 3.08 per cent, according to figures from data provider Wind. That total was down more than 40 per cent from the previous year.
Deutsche first flagged its intention to sell panda bonds in early November during a visit to China by the chief executive Christian Sewing, who was there as part of a business delegation to Beijing led by German chancellor Olaf Scholz.
Analysts said foreign debt issuance under the new rules would further integrate global financial institutions with China’s onshore capital markets.
“It’s encouraging that the Chinese government is trying to improve the financial relations between the international community and the domestic markets — and certainly China’s domestic markets need modernisation,” said Andrew Collier, China country analyst at GlobalSource Partners, a consultancy.
But Collier added that Beijing was unlikely to allow unrestrained issuance of renminbi debt by foreign companies, which “would blow a hole in the country’s capital controls”.
Joint lead underwriters on the deal included Agricultural Bank of China, Bank of China, China Construction Bank, China Securities and DBS.
Additional reporting by Cheng Leng in Hong Kong