UPDATE 1 - China makes offshore green debut
The Ministry of Finance of the People’s Republic of China has priced a debut offshore green sovereign bond with better than expected international participation thanks to the ESG label, overcoming concerns about the impact of US tariffs.
The Rmb6bn (US$822m) Dim Sum trade was split between Rmb3bn 1.88% three-year and Rmb3bn 1.93% five-year notes. The tranches were marketed at respective initial guidance of 2.3% area and 2.35% area.
The deal was first announced in January during the 2025 UK-China Economic and Financial Dialogue in Beijing. China also announced at the time that Bank of China London branch would issue sustainability-related bonds, denominated in renminbi and sterling, this year. That deal is expected to be out in the second quarter, but the timing has not been finalised, according to a banker familiar with the situation.
China's MoF held investor meetings in London for the Dim Sum bond, which will be dual-listed in Hong Kong and London. The strategic objectives of the trade were to promote the country’s ESG efforts and the internationalisation of the renminbi.
“ESG has been an important agenda for the Chinese government. They’ve been refining the focus of different industries over the last few years, and have become a leader including EV and renewable technology,” said Tim Fang, head of debt capital markets for Greater China at Credit Agricole, one of the leads on the deal. “Green financing is a key addition to what they want to do in the financial market and raise awareness around ESG.”
Fang called the deal “a very successful first step” and said it is China’s long-term strategy to issue green bonds in the international market. The country released its framework for sovereign green bonds in February.
To better promote its ESG efforts, China chose to execute the deal through syndication instead of auction, with the latter process being more commonly used for China’s sovereign Dim Sum bonds.
Bankers said syndication delivered better investor engagement and an opportunity to highlight the green finance framework and overall strategy during investor meetings, as well as more control over allocations.
“By utilising a syndication process, the issuer has more control over where they place the bonds – which includes the flexibility to prioritise these dedicated green accounts. Given the strong demand, the MoF had the ability to do that on this trade,” said George Thimont, head of Asia ex-Japan syndicate and head of Asia-Pacific ESG syndicate at Credit Agricole.
The leads said generally banks are the main buyers of Dim Sum bonds, but this deal saw more than 100 accounts across asset and fund managers and insurance companies as well as dedicated green funds from EMEA joining. Bankers said around 30%–40% of the accounts were non-Chinese.
“It’s better than we expected. It’s usually Chinese investors buying Dim Sum, but we had investors from countries like the UK, Luxembourg and Italy,” said a banker from a Chinese lender. He said the green label plus better liquidity compared to sovereign bonds sold through auction contributed to the strong demand.
Orders reached Rmb47bn at final guidance before falling slightly to Rmb40bn from 154 accounts at final pricing.
For the three-year tranche, the final order book crossed Rmb23bn from 81 accounts, including Rmb10.05bn from the leads and Rmb100m considered proprietary orders under Hong Kong rules.
Asia Pacific investors bagged 91%, while EMEA investors were allocated 9%. Sovereign wealth funds and central banks took 39%, banks 46%, asset managers and insurers 13%, and others 2%.
For the five-year portion, the final order book was Rmb17bn, including Rmb6.05bn from the leads and Rmb100m of proprietary orders, from 73 accounts.
Asia Pacific investors bought 76% and EMEA 24%. By type, central banks and sovereign wealth funds were allocated 21%, banks 51%, asset managers and insurers 25%, and others 3%.
The deal was priced about 2bp–3bp inside the sovereign's curve, and saw active trading in the secondary market with both tranches trading slightly tighter.
Bank of China, Bank of Communications, Barclays, China International Capital Corp, Credit Agricole, HSBC, ICBC and Standard Chartered were lead managers and bookrunners.
Little tariffs impact
The deal came before the US announced tariffs on more than 180 countries on Wednesday. China was among the hardest hit, facing a combined 54% tariff on all imports to the US.
Investors asked about China’s economic plans, policy support and tariffs during the roadshow, but bankers said these considerations were outweighed by the scarcity value of the paper, as well as the relatively secluded nature of the Dim Sum market. The leads also closed the deal before the US open to avoid bookbuilding momentum being affected by the tariff announcement.
“Things have been volatile from a macro perspective, and I think for high-grade, low-beta Asian names, the macro sentiment plays a smaller role compared to other high-yield issuers,” said a syndicate banker on the deal.
The Chinese banker said international investors continue to show interest in China for good credits offering the right pricing. He said there is concern that volatility in US Treasuries and uncertainty around rate cuts may make Chinese issuers reluctant to come offshore because of funding costs.
“If you look at market yesterday [Wednesday], the sentiment was risk-off, but how [Chinese] equities have closed is not that bad. Now, the future is looking bad because we have the details. The tariffs are more serious and severe, and the market is reacting to that,” said another bookrunner.
Chinese authorities are expected to ramp up policy support in response to the tariffs, wrote Becky Liu, head of China macro strategy at Standard Chartered, noting that fiscal policy has become more proactive, with year-to-date Chinese government bond net issuance tripling from the same period last year.
"We see continued front-loaded bond issuance in the foreseeable future to revive fiscal spending, in order to raise domestic demand to offset a loss of external demand," wrote Liu. "We also do not rule out the possibility for a further increase of government bond issuance later this year – either in [the] form of official budget deficit or special bonds – after the bulk of currently approved fiscal resources are utilised."
Chris Kushlis, chief emerging markets macro strategist at T Rowe Price, wrote in a note that investors will wait and see how Asian countries will respond.
“More likely, focus will go toward supporting the domestic economies, where countries with policy flexibility could introduce monetary and fiscal stimulus in a bid to counteract the negative growth effects of the tariffs,” he wrote.
(Additional reporting by Sara Velezmoro and Hui Ting Yong)