Panda bond threat to dim sum market
Will the panda eat dim sum for breakfast?
The mainland's securities regulator is looking at the possibility of letting foreign companies raise money by issuing so-called panda bonds on the Shanghai Stock Exchange - a move that could dent Hong Kong's lucrative dim sum bond business.
The China Securities Regulatory Commission (CSRC), under new chairman Guo Shuqing, is studying the option of letting overseas firms sell yuan-denominated bonds on the Shanghai bourse in a move that is likely to create a debt market running into hundreds of billions of yuan, say sources.
The proposal follows Guo's recent decision to put on hold a long-awaited international board allowing foreign companies to launch yuan-denominated IPOs in Shanghai, but it underpins his resolution to bolster the nascent bond market.
Beijing embarked on a pilot scheme in 2005, and so far it has allowed only a handful of foreign financial institutions, including the Asian Development Bank, to offer panda bonds issued on the interbank market.
The central bank and the National Development and Reform Commission (NDRC) have the final say on the sales of panda bonds, originally designed to widen yuan investment channels.
The Shanghai exchange's pending liberalisation of bond sales, if it happens, would be a big breakthrough since it would expand the panda bonds programme, allowing foreign non-financial institutions to sell debt on both the interbank and stock markets.
Panda bonds issued on the stock exchange are listed and traded, unlike those on the interbank market.
Big-name multinationals including General Electric have in the past applied to the NDRC for permission to issue panda bonds, without success.
Guo was a strong advocate of panda bonds when he was chairman of China Construction Bank. In 2009, he suggested the US government consider the possibility of issuing yuan bonds, rather than selling US Treasury debt to borrow money from China.
'He is very determined to develop a bond market that can help buoy the real economy,' said chief investment officer Gu Weiyong of Ucon Investment Management. 'The bond market on the exchanges will grow fast.'
Guo, viewed as a bold reformist and capable technocrat by financial-policy makers in Beijing, has already proved a no-nonsense regulator by implementing liberalisation.
The Shanghai exchange is also about to launch the mainland's first high-yield bond market - on which small and medium-size privately owned firms will be able to sell debt carrying high interest.
The expanded 'panda bond' scheme would also offer global firms an alternative to Hong Kong's offshore yuan market when firms raise yuan funds through debt offerings.
'If the move can really boost the onshore panda bonds market, I think it definitely offers the foreign issuers another fund-raising option. It might even be a better one,' Lei Shi, deputy director of fixed income at Ping An Securities, was quoted by Reuters as saying. 'The onshore market obviously has a much bigger capacity, so it will have some impact on the Hong Kong dim sum market.'
Reuters also reported that regulators could allow hedge funds for the first time to directly trade in mainland stocks and bonds, opening up one of Asia's biggest capital markets to the US$2 trillion industry.
The CSRC is said to be considering a proposal to lower the bar for obtaining a licence allowing foreigners to buy securities in the country, Reuters quoted sources as saying.