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NDRC gives SOEs Rmb75bn dim sum quota

17 Oct 2013

Chinese regulators have contacted issuers and the Hong Kong Monetary Authority to confirm that state-owned banks and corporates will sell dim sum debt after the Ministry of Finance makes its own issue expected later this month.

China’s National Development and Reform Commission (NDRC) has given state-owned banks and corporates permission to sell up to Rmb75 billion (US$12.3 billion) of offshore renminbi bonds over the next 12 months, bankers with knowledge of the regulation confirm to Asiamoney PLUS.

The Rmb75 billion quota will be split evenly between banks and corporates. The figure excludes any dim sum debt issued by the Ministry of Finance (MoF), which is expected to sell a Rmb10 billion retail-focused bond either at the end of October or early November, say Hong Kong-based bankers.

“The Rmb75 billion quotas has actually been more or less been approved for a while, but the issue has been the approvals for the actual borrowers,” said a senior Hong Kong-based banker. “Companies have been told but the NDRC hasn’t made a formal announcement…but we’ve heard from the HKMA [Hong Kong Monetary Authority] that they’ve been made aware of this to prepare for new issues.”

The NDRC was said to have reached out to the HKMA and to upcoming state-owned issuers after the Golden Week holiday around October 7.

The NDRC’s expected plan is for the MoF to issue its Rmb10 billion bond first to take advantage of market liquidity, as its deal will surely be the largest issue among the state-owned enterprises (SOEs) that are set to come to the market.

Next, either one or both of China’s policy banks – China Development Bank or the Export-Import Bank of China - will issue a bond, likely followed by at least two of China’s largest state-owned commercial banks, such as Agricultural Development Bank of China (ADBC) or ICBC.

The latter bank already has plans to its dim sum bond out of London next month, which UK chancellor of the exchequer George Osborne announced on October 14 via Twitter, though the exact size and timing of that deal has not been announced.

Dealers add that the state-owned banks have not yet contacted bookrunners to arrange their dim sum deals, but they have expressed their interest in issuing debt.

“We speak to these banks on a regular basis,” said the senior Hong Kong-based banker. “The MoF is coming and then after that it’s a bit uncertain if there will be a flood of banks or the corporates but the general approach is that both of the policy banks and then someone like ADBC and ICBC out of London will tap the market.”

Quota breakdown

Banks that received quotas in previous years – which include the country’s big-four state-owned commercial banks – are believed to have received quotas again.

However, it is understood that the five corporates which received quotas during the NDRC’s previous round – Baosteel Group, China Guangdong Nuclear Power, China Minmetals Group, Datang Group and Huaneng Power International - may not have received new issuance quotas in this most recent round.

“My understanding is that corporates will take turns this time, and the ones that participated in the market during the last round have not received an allocation,” said an investment banker with knowledge of the approvals. “All of the quotas have been allocated to different corporates already.”

The structure of the allocations means that a handful of SOEs will be able to issue a pre-determined amount of dim sum debt, rather than companies applying to the NDRC to draw down the overall quota on an as-needed basis.

Growing quotas

The Rmb75 billion limit is a 50% increase over the NDRC’s last round of quotas announced in 2011 and 2012. At the time, the NDRC allowed corporates and banks to issue a combined Rmb50 billion, also split evenly between the two issuer categories.

That round of quotas expired in April of this year, and since last of the five companies – China Datang – completed its issue on April 15, no other SOE has issued a dim sum bond.

Market participants expected the NDRC to issue its new round of quotas soon after the old ones expired, but the development agency has taken its time and as a result this has taken a core demographic of dim sum bond issuers out of the market this year. In 2013 to October 2, just Rmb8 billion has been issued by SOEs, representing 12% of the total. During the same period in 2012, SOEs including state-owned banks sold Rmb20.2 billion, or 29% of the total.

The NDRC’s delay has been attributed to the choppy market conditions. The regulator was believed to be preparing its new quotas to follow the MoF’s June bond issue but held off after the lacklustre response, dealers say. It then waited for the renminbi market to recover from an onshore liquidity crunch in June and volatility stemming from the US Federal Reserve’s comments regarding tapering its quantitative easing programme.

“We’ve been waiting for these approvals for quite a long time,” said a credit analyst. “The market isn’t as soft anymore and the dim sum market has picked up a bit for global issuers. It’s good to get these approvals – it’s time for Chinese [state-owned] issuers to begin tapping the market again.”

17 Oct 2013