The Chinese government plans to issue US$1 billion worth of 10-year US dollar-denominated bonds and 500 million euros worth of 7-year Euro-denominated bonds, according to the Ministry of Finance.
Though the final decision hasn't been made, insiders reveal that the government plans to begin a financial road show in mid-or-late October. It is another large-scale bond sale since the Chinese government issued US$1.5 billion of bonds in 2001.
Benchmark bonds
"The main purpose is to establish a benchmark bond with more liquidity instead of just raising money. The government has also tried to probe into the costs of bond issuance for those Chinese enterprises who plan to finance overseas," explained a chief official in charge of foreign debt under the Ministry of Finance.
The planned bonds are both US dollar-denominated and euro-denominated. The bond sale is entrusted to six world famous investment banks. Among them, Goldman Sachs, JP Morgan, Merrill Lynch are responsible for the sale of US dollar-denominated bond, while BNP Paribas, Deutsche Bank and UBS charge the euro-denominated bond.
The official, who didn't give his name, said that the term and scale of bonds were decided by the Asian bond market as well as the Ministry of Finance.
The analysts from Morgan Stanley, the main bond consignee in 2001, noted that there were few high-rating sovereign bond issuers in Asia, but China's high rating provided a good opportunity to issue bonds.
In November 2002, the Moody upgraded China's rating to AAA with a positive future, while Standard & Poor gave a BBB rating. It's said that the rating will be raised higher, thus reducing the issuance cost for the Chinese government.
Global bond welcomed
Analysts believe that global bonds will appeal to many foreign investors. Currently, influenced by the stagnant US economy, more and more investors turn to the Asia market, especially in China.
Considering the earnings and safety, investors tend to buy Chinese government bonds. However, analysts say that the interest rate of bonds might be lower than expectations.
Pave way for overseas finance
The chief official gave two advantages of the bond issuance. First, establish benchmark bond with liquidity and improve foreign investor confidence in the Chinese government. Second, it will test the cost baseline of overseas bond issuance for Chinese enterprises.
Considering China's forex reserve of US$360 billion, the Chinese government now begins to spend more instead of seeking money. Statistics from the State Administration of Foreign Exchange show that China's foreign debts had reached US$168.5 billion up to the end of 2002. Among them, the foreign debts of the Chinese government, financial institutes and enterprises account for 80 percent of the total.
"More and more Chinese enterprises begin to invest or finance in the international market now," the chief official said.
In August 2002, the central People's Bank of China, State Development Planning Commission (the current State Development and Reform Commission), State Administration of Foreign Exchange jointly issued a circular, asking Chinese enterprises to well manage the risk of foreign debt, and encouraging domestic forex loans.
In order to optimize the structure of foreign debts, government encouraged large- or medium-sized state-owned enterprises (SOEs) to borrow low-interest loans to pay high-interest loans. Some of them can issue foreign currency denominated bonds after the approval of the State Council.
Insiders say that the interest rate of the US dollar, after the Federal Reserve of the United States reduced the rate 13 times, was the lowest in 45 years. The low cost provided opportunities for some domestic qualified enterprises to raise money overseas.
(China.org.cn by Tang Fuchun, September 17, 2003)
