Bank of China raises US$500 million in first offering of Yulan bonds, as Beijing seeks to tap funding in Europe

Bank of China has become the first company to sell Yulan bonds, a new debt product that links Chinese companies with global investors, as the Asian country seeks to widen its funding access amid uncertain ties with Washington.

The bank, China’s fifth-largest lender by market capitalisation, has raised US$500 million from selling the bonds, Euroclear Bank, a Brussels-based securities depository house that offers settlement services for the notes, said in a press release on Thursday. The bonds, which have a maturity of three years and carry an annual interest rate of 0.86 per cent, were oversubscribed four times, it said.

“Through a shared goal of building a new issuance model that enables increased foreign investment into the market, we are seeing true demand for this service,” said Stephan Pouyat, global head of capital markets and funds services at Euroclear.

“For the first time, international investors have full Euroclearable access to mainland Chinese securities. An issuance of this importance is a fantastic way to start 2021, as we continue to add momentum.”

Tapping demand from investors in European financial markets has opened a new funding channel for Chinese companies, at a time when the Biden administration might maintain a hawkish rhetoric towards China, including cutting off funding access that has helped the likes of Alibaba Group Holding and JD.com expand their businesses.

US President Joe Biden has retained an executive order issued by his predecessor, Donald Trump, that bans investment in Chinese companies with military ties, dashing expectations that the edict would be revoked.

BOC’s Yulan bonds, named after a Chinese magnolia variety, were issued through Shanghai Clearing House, which is responsible for clearing China’s inter bond market. Global investors can settle the bonds within Euroclear’s network, the bank said. The bonds are denominated mainly in US dollars and euros.