State firms to beef up offshore bond stakes

PUBLISHED : Thursday, 13 January, 2011, 12:00am
UPDATED : Thursday, 13 January, 2011, 12:00am

China's state-owned companies will beef up their borrowing in the offshore bond market this year as they become increasingly active in overseas takeovers, according to French investment bank Societe Generale Corporate & Investment Banking.

'We expect China to be the centre stage of the international debt markets this year,' said Hong Kong-based Yves Jacob, head of Asia-Pacific for global capital markets at Societe Generale.

According to data provider Dealogic, mergers and acquisitions by mainland's state-owned enterprises amounted to US$32.3 billion last year up from 2009's US$21.9 billion.

Jacob said the many state-owned enterprises with larger funding needs for takeovers were more likely to tap the capital from the international bond market rather than the domestic market because financing costs were cheaper in the offshore market.

This applies to the mainland property developers, which dominated the high yield US dollar denominated bond market, raising US$15 billion last year, paying up investors more than 14 per cent in annual interest.

But the offshore yuan-denominated bond market has become another popular channel for both mainland and overseas companies to raise debt. This market has seen a number of issuance from companies, ranging from large US corporations McDonald's and unrated Hong Kong-listed property developer Shui On land. However, Jacob believes issuers with larger funding needs would continue to make use of the international bond market.

Sinochem (Hong Kong) on Tuesday sold a three-year offshore yuan-denominated bond paying investors 1.8 per cent, raising 3.5 billion yuan.

'I wouldn't say the yuan-denominated bond market has no depth,' said Jacob. It was not easy for international companies to raise yuan-denominated debt and in terms of tenor the G3 bond market can absorb bonds with longer durations, he said.

Given the concerns over the euro zone debt crisis it remains unclear whether US and European investors would continue to buy into Asian debt, said Hong Kong-based Guy Stear, head of research for Asia at Societe Generale, who estimated on average that two thirds of Asian investment grade debt was taken up by US and European investors last year.

'We have seen international investors to put a lot of money in Asia historically in equities but now also in fixed income,' Stear said.

High yield

Mainland developers dominated the US dollar denominated bond market last year, raising this much, in US dollars, $15b