MNI EXCLUSIVE: China May Spur Dollar Bond Sales, Advisors Say

     BEIJING (MNI) - China could bring forward planned issuance of dollar

sovereign bonds to provide borrowing benchmarks for Chinese corporate borrowers

and to take advantage of historically low interest rates, policy advisors and

market participants told MNI.

     The Ministry of Finance sold a record USD6 billion in bonds in Hong Kong on

Nov. 26, after raising EUR4 billion earlier in the month, in China's first

euro-dominated sovereign issuance since 2004. The Chinese government has raised

USD11 billion since it restarted dollar bond sales in 2017, after a 13-year

absence from the market.

     "Although the amount is not big, the objective is to improve the yield

curve of China's overseas sovereign bonds, and to help guide pricing of Chinese

corporate overseas bonds," said Li Chengwei, senior researcher at Chinese

Academy of Fiscal Science, "In addition, it helps to test international appetite

for the country's credit."

     China may issue bonds in other currencies, Li said.

     Lian Ping, chief economist at state-owned Bank of Communications --a lead

manager and joint book runners for the issuance -- told MNI that negative

interest rates in some countries have made issuance attractive, in addition to

allowing an opportunity for setting benchmarks for corporates.

     But China will not sharply increase foreign-currency issuance, which could

be perceived negatively by investors, said Lian, a prominent policy advisor.

Officials will also be reluctant to allow a jump in overseas corporate dollar

bond issuance, with many previous borrowers, particularly property developers,

facing looming maturities for existing debt.

     --PERPETUAL BONDS

     "We will proceed at a moderate and proper pace," he said, referring to

sovereign sales.

     Zhao Quanhou, director of the financial research center at the CAFS, said

officials will want companies to be sure they are properly accounting for

foreign exchange risks and have enough dollars to meet debt payments.

     The over-subscribed issuance of the non-rated sovereign bonds indicated

investors remain confident in the country's creditworthiness despite strong

economic headwinds, said Zong Liang, chief researcher at Bank of China.

     Chinese financial institutions should accelerate dollar bond issuance,

including sales of perpetual bonds, to meet global investor demand for

high-yielding assets, Zong suggested. State-owned power generator China Huadian

Corporation sold China's first issuer of dollar-denominated senior perpetual

securities in May.

     Although meeting government funding needs is not the prime purpose of

dollar bond issuance, advisors told MNI the low-cost loans would be used to

support domestic projects and to help indebted local governments. Some of

China's overseas projects, such as the continental Belt and Road Initiative,

also require dollars.

     November's dollar bonds were nearly 3.6 times oversubscribed. The 3-year,

5-year, 10-year and 20-year bonds were sold at rates 35bp, 40bp, 50bp and 70bp

higher than equivalent U.S Treasuries.

     The issuance came as China's foreign reserves have fallen from their peak,

and the country's current account surplus is on a declining trend.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$,M$$FI$,MGQ$$$]