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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7208)	9/29/2005 5:43:42 PM
From: John Pitera	Respond to of 33421

China Rolls out Panda Bonds -- Bejing Allows Foreign Issuance of Yuan Denominated Bonds. Beijing to Allow Foreign Issuance Of 'Panda' Bonds Step for Yuan Debt Marks Movement to Liberalize China's Capital Markets By JAMES T. AREDDY Staff Reporter of THE WALL STREET JOURNAL September 29, 2005; Page A16 SHANGHAI, China -- China said it will allow foreign organizations to sell yuan-denominated "panda" bonds in its domestic markets for the first time, marking a tentative step toward liberalization of its capital markets. Chinese banks are the likeliest buyers of such bonds, but any foreign bank with a branch in the country could buy them. The Asian Development Bank and the World Bank's private-sector arm, the International Finance Corp., have been approved to sell such bonds, the Ministry of Finance said. It said the decision was made by the State Council, China's highest administrative body. Participation by a triple-A-rated foreign institution offers China's market credibility and establishes a benchmark pricing level. The Ministry of Finance said that "approving international and multilateral financial institutions to issue renminbi [or yuan] bonds is the result of China's fast economic development," adding that "it will help the development of China's capital markets, and help improve the socialist market economy system." Foreign issuance in China's previously closed bond market could pave the way for bond sales by a wide variety of companies and lead to more market-sensitive interest rates. Over time, the aim is to allow a fuller range of issuers into the market, such as foreign companies that are expanding into the nation and need cash. But China is unlikely to open its doors to just any issuer until it more fully decontrols its exchange rate and interest rates. For several Asian countries, the sale of domestic-currency bonds by a foreign multilateral institution has been a rite of passage signaling maturity in its capital markets. China's nickname for its bonds -- pandas -- is akin to the U.S.-dollar denominated "dragon bonds" that were sold around Asia during the 1990s. In granting the foreign agencies permission to sell the bonds, China appears to be compromising less than other Asian countries have when they allowed such issues, a banker familiar with the plans said. China's central bank will have a final say over terms of an offering. Offering sizes being whispered in the market of about one billion yuan ($124 million) each are small compared with bonds issued domestically by Chinese companies and the government. In addition, underwriting and distribution will be handled solely by domestic Chinese firms, despite efforts starting as early as 2000 by foreign banks to have a role. Citigroup Inc. underwrote or was otherwise involved in launching four of the past five inaugural Asian issues since 1997, while HSBC Holdings PLC had a role in the fifth. The Manila, Philippines-based ADB and Washington-based IFC are eager to raise money in China's markets and have long been vying to launch a yuan bond. Still, neither institution anticipates much benefit beyond the credit for being first to set the benchmark. It is unclear when bond offerings might go ahead. The ADB said it has appointed BOC International (China) Ltd. as lead underwriter. A person familiar with the IFC issuing plans said it hopes to raise one billion yuan in fixed-rate bonds after next month's holidays in China. Statements from the ADB and IFC indicated they each would hold yuan for their programs in China, rather than swap it into dollars as is often the case with local-currency issues by multilateral institutions. Japan's key support agency didn't win approval to sell yuan bonds. The ministry statement didn't cite the Japan Bank for International Cooperation, which around a year ago, along with the IFC and ADB, was given preliminary approval to issue a total four billion yuan in local-currency bonds. All the agencies have lent heavily or invested in China in recent years, but Japan has moved to scale back its support as China's economy has expanded rapidly. --Jane Lanhee Lee and Cris Larano of Dow Jones Newswires contributed to this article