BNP Paribas gains licence to underwrite ‘panda bonds’ in China

Onshore issuance by foreign companies is expected to rise.

BNP Paribas has received a licence to underwrite bond sales by foreign companies in China, the bank said on Monday, the latest step by Chinese regulators to increase foreign participation in mainland debt markets.

After years of complaints by foreign banks about market access in a broad range of business lines, regulators are also seeking to demonstrate greater openness — partly as a means to rebut complaints by US President Donald Trump.

BNP Paribas is the third locally incorporated foreign bank in China to receive a licence to underwrite so-called panda bonds, following HSBC and Standard Chartered. No US bank has yet achieved such a licence.

Market participants expect that panda bonds will gradually replace dim sum bonds — the term for notes issued in Hong Kong’s offshore renminbi market — as the primary tool for foreign companies to sell renminbi-denominated debt.

But panda deals remain rare, with only Rmb9.4bn ($1.4bn) in such bonds issued since the beginning of last year, according to Wind Info. Issuers include the government of Hungary, Malaysian lender Maybank, the Canadian province of British Columbia and the Philippines’ government.

Still, BNP Paribas expects issuance to grow in the coming years and Chinese regulators are taking steps to streamline the approval process.

“With the growing maturity of multinational corporations’ operations onshore in China, foreign parent companies are increasingly seeking to tap the domestic bond market as an important and highly cost-effective source of renminbi funding to support their Chinese expansion needs”

CG Lai, Deputy Chief Executive, BNP Paribas China

Beyond panda bonds, foreign banks have long sought licences that allow them to underwrite debt by Chinese issuers.

CG Lai, Deputy Chief Executive, China, BNP Paribas
In July, Deutsche Bank received a licence allowing it to underwrite short-term commercial paper and medium-term notes, a popular form of corporate debt in China’s interbank market. Citigroup, BNP Paribas, HSBC and JPMorgan Chase also have this licence. In April, the banking regulator issued rules allowing all foreign banks to underwrite government bond sales without previous approval.

But in China’s fragmented bond market — where different agencies regulate different categories of debt — no single licence enables a bank to underwrite all types of debt.
China is seeking to expand foreign participation in its onshore bond market as investors as well as issuers. A bond connect programme launched last year allowed foreigners to buy mainland bonds through Hong Kong brokers.

Foreign holdings of Chinese onshore bonds reached Rmb1.75tn by the end of September, up more than Rmb500bn from the end of last year, according to central bank data.

Overall market access for foreign banks has also increased, though only at a modest pace.
In March, China’s securities regulator issued rules permitting foreign groups to own majority stakes in mainland securities and companies and fund managers, though no foreign group has yet achieved such a majority stake under in either category under the latest regime.

Last December, the banking regulator eased rules for foreign commercial banks in a range of areas, including new branch openings.

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