Pimco Sees China’s Panda Bonds Eclipsing Hong Kong Dim Sum Debt

  • Yuan note sales offshore drop 33%, global issuers turn onshore
  • Dim Sum debt "will definitely lose out to" Panda bonds: Pimco

Pacific Investment Management Co. is forecasting Panda bonds will eclipse Dim Sum notes as an avenue for yuan fundraising, adding to signs Shanghai is set to win the battle with Hong Kong to be China’s Wall Street.

Sales of notes sold by overseas issuers onshore, named after the bear native to China, reached 27.6 billion yuan ($4.2 billion) this year, twice the amount in the whole of 2015, Bloomberg data show. Offerings of yuan securities offshore, dubbed after Hong Kong’s steamed snacks, dropped 33 percent to 132.5 billion yuan from the year-earlier period. Pimco sees a more promising future for Panda issuance as it can tap Chinese yuan deposits, which reached 142 trillion yuan at the end of April.

“The Dim Sum bond market will definitely lose out to the Panda bond market,” said Luke Spajic, head of portfolio management for emerging Asia in Singapore at Pimco, which manages about $1.5 trillion worldwide. “I’m extraordinarily interested in the Panda market because there is a significant pool of domestic savings searching for yields.”

Keen to establish Shanghai as an international center of finance and make the yuan a global currency, China’s government has made it easier than ever to invest directly in mainland markets without going through Hong Kong. In February, the People’s Bank of China said most types of overseas financial institutions will no longer require quotas to invest in its bond market.

MSCI Inc., whose indexes are used as benchmarks for tracking more than $10 trillion of investor assets, will announce early Wednesday morning Hong Kong time whether China’s domestic equities will be added to its global benchmark gauges, and bonds may be next. Hong Kong’s stock market now trails those on the mainland across a range of measures.

Credit Agricole SA estimated in a recent report that Panda bonds will balloon to 13.3 trillion yuan by 2025. Just 38.6 billion yuan in the securities are outstanding now, dwarfed by the 680.5 billion yuan in Dim Sum securities. 

Hong Kong-based Chong Hing Bank Ltd. sold 1.5 billion yuan of three-year Panda notes last month. Republic of Korea and Province of British Columbia each sold 3 billion yuan of the notes in December and January, respectively. Korea’s issuance drew orders for more than four times the amount offered. Sri Lanka is planning to sell Panda bonds “in the next couple of weeks,” Finance Minister Ravi Karunanayake said in a May 3 interview.

‘More Efficiency’

Although the nation has yet to come out with formal guidance for Panda note issuance, regulators have been studying how to improve the mechanism including disclosure, accounting and auditing, as well as tax issues, the Chinese central bank’s Deputy Governor Pan Gongsheng said at a forum in Beijing on June 2.

Click here for a QuickTake summary of the internationalization of China’s currency.

Teething troubles remain. It takes Asian Development Bank longer than the international norm to issue such debt because of the need to suit local rules, said Jonathan Grosvenor, adviser at office of the treasurer for ADB, at the forum.

More participants in the Panda bond market will speed up the issuance process, according to BNP Paribas SA.

“As more issuers come to the panda bond market, we are going to see more efficiency,” said Frank Kwong, head of primary markets for Asia Pacific at BNP in Hong Kong.

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