Panda Bonds

TOKYO — Floats of yuan-denominated bonds in mainland China by foreign issuers have bounced back this year as global multinationals bank on the economy’s long-term growth outlook to plot business expansion.

For the year through September, 19.5 billion yuan ($3.02 billion) worth of so-called panda bonds have been issued, according to Refinitiv, topping the 2020 total. The sum excludes floats by entities registered in Hong Kong and Macao.

Last year, the coronavirus outbreak prompted companies to accumulate funds on hand. As a result, panda bond issues shrank by half from the record 32 billion yuan logged in 2019.

This year, European companies have shown a renewed appetite for funding. Germany’s Daimler raised 8 billion yuan through four floats in March and May. Fellow German automaker BMW has issued 7 billion yuan since June.

Even in 2020, Veolia Environnement, a French waste management service provider, raised 3 billion yuan.

“There is a demand for funds ahead of Chinese business expansion in the medium to long term,” said Jiang Jiang, senior China analyst for Daiwa Securities.

Global automakers are investing in production capacity and developing sales networks for electric vehicles through their Chinese joint ventures. Directly raising yuan-denominated funds mitigates the exchange rate risk of converting euros or other currencies into the yuan.

The companies issuing panda bonds enjoy investment-grade ratings of at least BBB, granting the sellers another advantage. China’s bond market has seen turbulence due largely to the trouble in the domestic real estate industry.  

“Bonds from foreign companies that have high credit ratings are appealing” to Chinese institutional investors, said Shinichi Seki, senior researcher at the Japan Research Institute.

The 3-year bonds sold by Daimler in May initially carried a yield above 3.7%, but now the rate has fallen below 3.5%, indicating a gain in value.

Meanwhile, demand to raise funds using Japanese yen-denominated samurai bonds has waned. Just 332.5 billion yen ($3.03 billion) has been issued during the first nine months of the year, a roughly 10% drop from the year earlier period.

The amount issued so far this year is just a fifth of the 1.74 trillion yen in samurai bonds floated throughout 2019. The value of this year’s sum is on par with panda bond floats.

When Chinese financial authorities threw open the bond market to international investors in 2015, panda bond floats were less than a 15th of the value of samurai bond issues. The current trends underscore the falloff in fundraising in the pandemic-hit Japanese economy.


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