China's Global Ambitions Playing Out in Remote Bond MarketsBy and
Bocom unit edged out foreign rivals in Maldives’ dollar sale
Frontier underwriting foray comes amid Belt and Road push
Chinese diplomacy is spurring a shake-up in the world of frontier-bond underwriting.
When the tiny island nation of the Maldives prepared to make its dollar-debt debut last week, it looked beyond more veteran international arrangers to Bocom International Holdings Co., the securities arm of China’s fifth-biggest bank. The firm was sole lead on the $200 million, five-year bond, the latest in a slew of frontier-market dollar offerings this year.
Chinese banks also popped up in Sri Lanka’s blowout dollar-bond sale last month, with Citic Securities Co. and ICBC International Securities Ltd. -- a unit of the world’s largest lender by assets -- part of a syndicate marketing the $1.5 billion issue. Their involvement comes as China ramps up its Belt and Road initiative, with almost $80 billion in financing to be doled out to developing nations participating in President Xi Jinping’s globalization push.
“The Maldives’ government has a good relationship with the Chinese government through our development projects as well as the Belt and Road Project, and very good relationships with Chinese banks as well,” Saruvash Adam, head of the fiscal affairs division at the Maldives Ministry of Finance and Treasury, said in a phone interview. “The good relationship may have favorably affected the decision but is not the driving factor. The commercial terms and the confidence we have in Bocom International was a bigger factor.”
Representatives of Hong Kong-based Bocom International weren’t available to comment on the deal.
Launched in 2013 as a way of deepening trade and diplomatic ties between China and countries along the ancient Silk Road route, Belt and Road has morphed into a vehicle for Xi to showcase his country’s internationalization bona fides, with Chinese companies pushed to invest in offshore infrastructure projects.
It’s also helping diversify the buyer pool for frontier debt, with Sri Lanka seeing quadruple the demand of previous year’s dollar-bond sales, in part because of bids from Chinese investors.
The cheapest borrowing costs in four years are luring smaller, lower-rated countries to the dollar bond market, with frontier issuance in Asia already at $1.8 billion so far this year, more than triple what it was in the same period of 2016, data compiled by Bloomberg show.
The Maldives was in talks with international banks including Australia and New Zealand Banking Group Ltd., Deutsche Bank AG and DBS Group Holdings Ltd. as well as other Chinese firms, before settling on Bocom to run their issue, Finance Minister Ahmed Munawar said. The country plans to return to the dollar bond market in 2018, and Islamic debt and syndicated loans are also options. State-run companies may borrow in dollars this year, he said.
Papua New Guinea, the impoverished Pacific Island nation planning its dollar-bond debut in the second half, has mandated Bank of China Ltd. as one of the lead underwriters, according to central bank Governor Loi Martin Bakani.
The lender, China’s fourth-largest, can deliver small countries access to investors in the world’s second-largest economy, said Sebastian Ha, head of the debt syndicate at Bank of China in Hong Kong. More than 80 percent of the Maldives dollar notes are said to have been sold to investors in the Asia region.
“We could offer the same service that most international banks provide in the underwriting space,” said Ha. “However, more importantly, we could offer the connection between the issuing country and China.”
While its tropical beauty makes the Maldives an attractive destination for luxury tourists, the string of coral atolls faces infrastructure challenges, with almost all the materials for construction projects having to be imported, says Adam at the finance ministry. “It means we will seek financing in both bonds and loans in the international market in the future.”
China forged a partnership with the Maldives in 2014, and has been actively involved in development in the country, with some 100 Chinese workers flown in to help build a new runway at the airport in the capital, Male, according to China’s official Xinhua News Agency.
For Leo Hu, a portfolio manager in Singapore at NN Investment Partners, which manages about $208 billion in assets, issuance like the Maldives bond is welcome, helping broaden the emerging-market dollar-debt universe he invests in.
“Under the Belt and Road initiative, I won’t be surprised to see more and more Chinese investors and banks involved in frontier markets who have good relationship with China,” he said.
— With assistance by Jun Luo, and Hannah Dormido