China issues euro-denominated bonds

Xi says move shows support for France's push to become global financial center

The successful issuance by China of 4 billion euros ($4.4 billion) of sovereign bonds in France is a significant move to support Paris in its effort to build itself into an international financial center, President Xi Jinping said on Wednesday.

Xi made the remarks in talks with visiting French President Emmanuel Macron at the Great Hall of the People in Beijing. Macron is on a state visit to China following his stop in Shanghai for the opening ceremony of the second China International Import Expo.

Xi said the country's first euro-denominated sovereign bond issuance since 2004 is an important step to deepen financial cooperation between China and France as well as between China and the European Union.

The bonds, the largest foreign currency denominated bond offering of its kind, which the Ministry of Finance issued in Paris on Tuesday, is expected to fuel more European investment in China. Global investors had subscribed nearly 20 billion euros for the bonds - five times the issuance amount - with 57 percent of the investments from Europe, according to authorities.

"The result was better than expected," the Ministry of Finance said in a statement on Wednesday.

Reopening euro financing channels is conducive to enriching and improving the yield curve of China's overseas sovereign bonds, providing a benchmark for Chinese bond issuers who need financing in euros, the ministry said.

This year also marks the 55th anniversary of the establishment of diplomatic relations between China and France. The issuance of China's sovereign bonds in Paris reflects the importance of the European financial market and will help strengthen bilateral economic and financial cooperation between the two countries, the ministry said.

The bond issuance has sent a clear message of China's continual opening-up to foreign investors and its significance in further integrating the country in global finance, especially in leading the way for more Chinese issuers to access European markets, according to analysts.

The bonds being sold in France will help with alternative funding sources for the Chinese government, as well as for companies seeking funds in the European capital market, analysts said. The Ministry of Finance had previously sold US dollar bonds for two consecutive years - $3 billion last year and $2 billion in 2017.

Deutsche Bank, Germany's largest lender, was one of the foreign banks that supported the latest deal.

"The transaction is truly a milestone, setting a benchmark for Chinese issuers in the European market," said Samuel Fischer, Deutsche Bank's head of China onshore debt capital markets.

"The European market offers very low interest rates and an unrivaled institutional investor base for long dated transactions. We have seen increasing interest for Chinese corporations to tap the euro markets, given their growing presence in Europe, across investment grade and high yield," he said.

Kim Eng Tan, senior director at S&P Global Ratings, said: "China issues this bond at a relatively favorable time. Interest rates have remained stable at levels attractive to many borrowers."

S&P Global had earlier assigned an "A+" rating to China's proposed euro-denominated bonds, which reflected the global rating agency's long-term issuer credit rating for the country, Tan said.

"The issuer credit ratings on China reflect our view of the government's reform agenda, growth prospects and strong external metrics," he said.

According to the Ministry of Finance, the 4 billion euros of sovereign bonds have three different maturities: 2 billion euros of seven-year notes with a yield of 0.197 percent, 1 billion euros of 12-year notes with a yield of 0.618 percent yield, and 1 billion euros of 20-year notes with a 1.078 percent yield.

Cheap funding costs can help attract investors, analysts said. According to a Bloomberg Barclays index that is a benchmark of the global bond market, the average yields on investment-grade euro bonds were below 0.5 percent on Wednesday, close to a record-low level of 0.23 percent in late August.

The latest bonds will be listed on the pan-European and London stock exchanges, the ministry said.

Jiang Xueqing contributed to this story.

Contact the writers at chenjia@chinadaily.com.cn

(China Daily Global 11/07/2019 page1)