Tapping the Euromarkets

A number of Chinese issuers have issued bonds in the European debt markets recently. To date in 2015, more than ten Chinese companies have issued in excess of €9 billion of Euro-denominated bonds, with maturities ranging from two to 12 years.

The issuers have all been investment grade state-owned enterprises, banks and municipalities, in a wide range of sectors including industrials, utilities, energy and banking. These issuers have been attracted by the low interest rates currently payable on Euro-denominated bonds, with interest rates as low as 1%.

In July, China Overseas Land & Investment Limited became the first Chinese property developer to issue Euro-denominated securities. China Overseas Land & Investment Ltd, a state-owned property developer, issued (through its Cayman subsidiary) €600,000,000 of 1.75% Guaranteed Notes due 2019.

Whereas most bond issues by Chinese issuers are listed only on the Hong Kong or Singapore stock exchanges, many European institutional investors have investment guidelines that require debt securities in their portfolios to be listed on an EU exchange. Accordingly, the notes issued by China Overseas Land & Investment Ltd are listed in Hong Kong as well as on the Global Exchange Market of the Irish Stock Exchange. The Global Exchange Market is not a regulated market for the purposes of EU directives, and therefore offers a flexible and lightly regulated listing facility for non-EU issuers of Eurobonds.

In addition to the attraction of the lower funding costs, Chinese issuers are able to diversify their investor bases by attracting European investors for these Euro-denominated securities. Analysts are predicting other leading Chinese property developers will issue bonds in these markets.

Onshore Corporate Bonds

As part of China’s response to counter the broader effects of a slumping property market, the China Securities Regulatory Commission has in recent months began allowing real estate developers not listed on the domestic stock markets to issue onshore bonds. Previously, only companies listed onshore could expect to receive approval to issue onshore bonds. This has meant new funding sources for property companies that have been frequent issuers of offshore dollar and RMB bonds, and the availability of significantly lower interest rates for onshore issues has resulted in a number of recent issuances with many more in the works.

China’s central bank, in addition to lowering interest rates, has injected large sums of cash into the domestic market, and the inability of local funds to invest outside the country means there has been robust demand for local stocks and bonds. And, despite the fact that the bonds issued by property developers have been at significantly lower coupons than their existing offshore bonds, their onshore bonds are nevertheless among the highest yielding bonds available in that market.