Panda bonds issuance to help boost B&R projects

The Shanghai Stock Exchange will complete the financing mechanism for Panda bonds issued for projects related to the Belt and Road Initiative.

In a news conference held on Wednesday, bourse officials said that they are studying the financing mechanism for such Panda bonds to support the companies and organizations－either based in China or from other countries and regions participating in the initiative－to issue renminbi bonds at the exchange.

The bourse will also study the possibility of equity financing for projects related to the initiative. They will continue to explore D-share issuing services at the China Europe International Exchange AG.

A "Panda bond" is a yuan-denominated bond issued in the Chinese mainland market by an overseas entity. It was rolled out in 2005 by the central government as part of the internationalization of renminbi, or the yuan. At present, foreign companies and Chinese companies' overseas branches make up the majority of issuers.

According to Gao Li, spokesperson for the Chinese Securities Regulatory Commission, a total of seven companies based in both China and abroad with plans to issue Panda bonds related to the initiative have obtained approval from the CSRC or the bourses in Shanghai and Shenzhen. The total issuance is estimated at around 50 billion yuan ($7.9 billion). Among these companies, four have already issued such bonds worth a total 3.5 billion yuan.

The market for Panda bonds started to take off in 2016, with issuance surging to a record high of 132 billion yuan, according to Shanghai-based financial information service provider Wind. However, the amount significantly contracted by 46 percent in 2017 to 71.9 billion yuan due to higher costs for financing, regulators' tighter grip and a limit on bond issuance by property developers.

However, global credit ratings agency Fitch Ratings wrote in a note late last year that the Panda bond market is likely to expand over the longer term, as it will be an important source of yuan funding for Chinese and foreign corporations taking part in the Belt and Road Initiative, which includes planned projects worth more than $1 trillion.

Beijing-based China Lianhe Credit Rating echoed Fitch's findings by pointing out that the majority of the Panda bonds newly issued by foreign entities last year are from economies involved in the initiative.

Experts from Lianhe explained that there will be more Panda bond issuers this year since the Belt and Road Initiative has extended to a wider range. New Zealand and China signed a cooperation agreement regarding the initiative in March 2017. The United Kingdom and France have also recently expressed their willingness to join the initiative. Latin America countries such as Mexico, Chile, Argentina and Brazil also were included in the initiative in January.