In this third part of the GlobalRMB awards, we present our reasons for choosing the best issuers in the FIG, corporate and SSA categories — and praise the strong performance of one well-known foreign law firm.
Most impressive FIG issuer: Bank of China
When deciding on the criteria for this award category, GlobalRMB saw this as a chance for global financial institutions to show their sophistication in the issuance of bonds in RMB, perhaps even by making a link to one of China's strategic initiatives. That Bank of China is the winner of the award is partly a result of the fact that those markets have yet to reach the level of maturity that would be needed for a non-Chinese issuer to take the lead.
That realisation should not detract from Bank of China's accomplishments in this category. The award is a testament to the key role the bank plays in the promotion of RMB internationalisation and China’s other key strategies, such as the Belt and Road Initiative, across a wide range of deals.
There is no other FIG issuer, even among its Chinese rivals, that has contributed to developing and broadening global RMB financing more than Bank of China. This is, of course, among its mandates as one of the first Chinese SOE banks to go global, but the fact remains that Bank of China is trailblazing where others follow.
This is true both when considering the historical track record of the bank and the specific period under consideration for the award. The bank has used its global network of branches to create renminbi bond markets where little to none existed before. Look, for instance, at the renminbi climate bond issued by its Paris branch in November 2017 or the deal sold by its Macau branch in February 2018.
GlobalRMB was also impressed by the bank's third foray in the Formosa bond market in Taipei this April. The latter, given the complicated relationship between Taipei and the Mainland, takes on added meaning as a symbol of the economic ties between the two markets despite a complex political situation.
While innovation is clearly at the heart of Bank of China's overseas renminbi funding, the bank has not sacrificed on execution. In the cases of both the Macau and Paris bonds, Bank of China achieved tighter pricing than it would have in its home market.
Most impressive corporate issuer: Daimler
There were numerous deals by international corporates in the renminbi markets during our awards period. But for GlobalRMB’s inaugural awards, we also wanted to give special consideration to those issuers that have shown a long-term commitment to China's rapidly internationalising currency.
From that point of view, Daimler stands alone. The German carmaker dominates RMB bond issuance.
This is particularly true in the onshore market. In the offshore RMB market, Daimler debuted with a syndicated deal only in March this year, but onshore it has become the centre of the Panda bond universe. There would arguably be no corporate Panda yield curve were it not for Daimler.
In the period under consideration, out of 33 deals and Rmb74bn in issuance by corporates, Daimler priced four deals worth Rmb17bn, or 23% of the total. If one excludes red chip issuers — overseas-incorporated Chinese firms — Daimler's share rises to a staggering 85%. The firm is also starting to be a recurring name among foreign originators of onshore securitisation, with a two-tranche deal in September 2017 following its debut in the market a year earlier.
Daimler has clearly shown the way for highly rated foreign corporates seeking to add renminbi to their funding toolkit. It may be the right time for other multinationals in China to follow its lead.
Most impressive SSA issuer: The Republic of the Philippines
Given the lacklustre issuance from sovereign, supranational and agency issuers (SSAs) in the offshore RMB market, GlobalRMB focused largely on Panda bonds for this award. But the category is a complex and often politicised one, where some deals seem to price more as a matter of diplomacy than as a practical funding tool. For the market to grow, funding needs should come first.
There was one clear exception to this murky picture during our awards period and that is the winner in the category, the Republic of the Philippines. Its Panda bond, priced in March 2018, was the most recent SSA deal and one of four during the awards period.
The Rmb1.46bn bond was not the largest Panda from a sovereign, but it scored points in several areas. It was extensively marketed through Bond Connect, meaning that underwriters pushed global investors to participate in the issuance. The tactic paid off, with the deal ending up over six times oversubscribed, the highest level for any Panda bond. Foreign investors got nearly 90% of the total, a record for any onshore deal.
The fact that the deal priced at 5% was equally noteworthy. It came at 35bp over three year China Development Bank yields, reflecting the massive demand for the bond, which had initially marketed with a 5%-5.6% range. The final coupon also meant that the Republic of the Philippines managed to price within its dollar curve on an after-swap basis, a key consideration for future SSA issuers in the Panda market.
The issuer was conscious of the power of China's Belt and Road Initiative brand, taking the proceeds offshore to fund infrastructure projects in the Philippines linked to the project. That was just another box ticked on the way to a deal that was a clear success not just for the sovereign but for Bank of China and Standard Chartered, the arrangers for the deal.
Best law firm: Clifford Chance
The role of law firms in China shares similarities with their role in the global financial markets: they are called on to make sense of opaque, sometimes conflicting regulations and offer clear guidance to their clients. When you combine financial markets and China, that job becomes even more difficult.
Foreign law firms are largely still barred from practicing local Chinese law, but they are nonetheless crucial. Foreign corporations and financial institutions looking at Chinese capital markets have to rely on the work of foreign law firms to help them understand and navigate China's rapidly evolving regulatory framework. Outside of the Mainland, these same law firms play a key advisory role for investors seeking access to China through the many investment schemes, including Stock Connect and Bond Connect.
In all of the above, London-headquartered Clifford Chance remains a standout player. It was the first international law firm to enter the market in 1985, setting up Beijing, before expanding to Shanghai in 1993. Co-managing partners Terence Foo and Tim Wang lead the firm's presence from the two cities, with Wang specifically focusing on corporate M&A and capital markets.
The firm continues to advise clients on complex China-related matters in both inbound and outbound mandates, whether it is advising foreign asset managers looking at the onshore China opportunities, or Chinese clients in their cross-border investments.
Regarding the inbound business, Clifford Chance has recently advised an asset manager on its policies for trading securities and fixed-income instruments in the PRC market as well as their plan of setting up presence in China.
On the outbound front, the firm has advised local clients on structured credit transactions, including leveraged total return swaps and repackaging transactions linked to bonds and additional tier one capital instruments. These transactions also include investments through qualified domestic institutional investor investment vehicles, which allow PRC investors to gain exposure to non-PRC securities.