I'd like to throw this open for some discussion. Looks like the Chinese want to keep some of their excess dollar liquidity at home rather than recycling to the US GSE and treasury markets. May indicate a slow down in the recycling demand for US based securities?
CAPITAL MARKETS & COMMODITIES: China plans to raise
euros and dollars
By Enid Tsui in Hong Kong
Financial Times; Sep 02, 2003
China is planning to issue US dollar and
euro-denominated government bonds of as much as
US$1.45bn in October, despite the country sitting on
foreign reserves worth more than US$350bn, or a third
of annual GDP.
Global demand is expected to be strong, as Chinese
government bonds are rare. The debt market has seen no
non-renminbi Chinese sovereign debt since 2001, when
Beijing sold $1bn of 10-year US dollar and €550m of
five-year euro bonds, which were five times
subscribed.
This year's issue is almost a duplicate of the 2001
transactions. Beijing is expected to sell a $1bn
10-year tranche and a €500m five-year tranche at the
same time.
Goldman Sachs, JP Morgan and Merrill Lynch are
expected to lead sales of the US dollar bonds, while
the euro tranche is expected to be handled by BNP
Paribas, Deutsche Bank and UBS.
China has no obvious need to raise foreign currencies
given the size of its forex reserves.
Pieter van der Schaft, an economist with Barclays
Capital in Hong Kong, described the issue as an
exercise to maintain "name recognition" of Chinese
investment opportunities in the international market.
"China is keen to diversify its investor base and the
new issue is one way of achieving that," he said.
He predicted that the launch would be popular, since
the Beijing government is generally seen as a low-risk
issuer.
"China is no longer perceived to be an emerging
market," Mr van der Schaft said. "It has high
liquidity and huge foreign reserves. Moody's has given
it an A3 rating and most investors treat it on that
basis."
Other agencies, however, give China lower ratings
given the extent of non-performing loans that plague
its banking system. It is rated BBB by S&P, although
with a positive outlook.
China's existing US dollar bonds, due in 2011, were
yielding 4.60 to 4.65 per cent yesterday, or 14 to 19
basis points above US Treasuries.
Some domestic institutional investors are expected to
be among those buying the overseas tranches. Chi na's
banks are permitted to invest in overseas bonds, and
the government is planning to allow insurance
companies to do the same.
China will be under pressure to find uses for its
foreign currency holdings, as long as it maintains the
current renminbi exchange rate against the US dollar.
On Monday, it launched a seven-year Rmb46bn Treasury
bond in Shanghai, which closed 0.73 per cent lower
than its par value. Its yield rose from the 2.66 per
cent coupon rate to 2.76 per cent after one day of
trade.
Mr van der Schaft said its performance did not
necessarily indicate a domestic investor preference
for overseas issues. "China's debt market is so big,
the overseas tranches are basically insignificant," he
said.
The domestic renminbi debt market has no shortage of
supply, unlike the overseas market. Beijing is
planning to raise a total of Rmb1,000bn through the
local debt market this year. |
