JPMorgan Says Panda Bond Sales to Grow as China Opens Market

Updated on
  • JPMorgan, BNP Paribas got company note underwriting licenses
  • BNP Paribas says it may expand team after getting license

JPMorgan Chase & Co. and BNP Paribas SA said foreign companies will sell more yuan bonds in China this year, after the government started allowing the two banks to underwrite corporate notes last month.

JPMorgan is having an “active dialogue” with global clients about possible issuance of so-called panda bonds, according to Samantha Xie, China head of debt capital markets at the U.S. bank. BNP Paribas said it may expand its onshore debt capital markets team, which now consists of three people, after it gained wider access to the market.

“China would like to see more diversity in the bond market,” said Xie in an interview from Beijing. “Our onshore underwriting business will focus on helping foreign issuers sell panda bonds in China.”

While the world’s third-biggest corporate note market is still dominated by local underwriters, Chinese leaders have vowed to open the finance industry to foreign investment. Overseas banks’ share of deals only came to 2.8 percent last year because of their restricted access, in a market that saw sales rise 9 percent to 9.2 trillion yuan ($1.3 trillion), according to Bloomberg-compiled data.

“Foreign underwriters have an advantage over Chinese counterparts in helping foreign companies tap China’s bond market because they know overseas clients a lot better,” said CG Lai, the Greater China head of global markets at BNP Paribas in Shanghai.

JPMorgan and BNP Paribas received approval last month to underwrite corporate bonds regulated by the central bank. That followed a twelve-fold increase in panda bond offerings to 120 billion yuan last year. The People’s Bank of China regulated 34 percent of those securities.

Cost Savings

The onshore debt market offers the cheapest funding in yuan, according to Lai. The average yield on three-year Dim Sum bonds -- yuan notes issued offshore -- is about 110 basis points higher than Chinese onshore securities of the same tenor, according to a Bank of China Ltd. index.

United Co. Rusal, the biggest Russian aluminum maker, said this month it had registered 10 billion yuan of panda bond sales.

BNP Paribas’s Lai said demand for panda note issuance is strong and European, U.S. and Taiwan clients have expressed interest in selling them. In addition to the onshore yuan debt issued by overseas borrowers, Lai said the French bank will also focus on helping multinational companies in China with bond offerings.

Before granting the license to the two banks in January, the central bank had approved only two firms, HSBC Holdings Plc and Standard Chartered Plc, to underwrite corporate bonds in the past five years. The door to foreigners still isn’t fully opened. The license the four foreign banks own doesn’t allow them to lead-underwrite company debt sales.

JPMorgan and BNP Paribas are confident overseas banks will get permission to do so in the future for central bank-regulated securities, which accounted for 53 percent of all yuan corporate debt sales last year.

“Eventually, you will see China’s bond market with a lot more flavorings with international issuers and investors,” said Lai. “I am confident that foreign banks don’t need to wait another four to five years to get the lead-underwriting license.”