2014: Panda prototypes

IFR Asia - 20th Anniversary Special Issue 2017
2 min read

A high-profile German carmaker might not seem the obvious candidate for a test of China’s cross-border financing framework, but it was Daimler’s Rmb500m (US$73m) Panda bond in March 2014 that set the prototype for this promising market.

As the first foreign corporation to sell renminbi bonds onshore, Daimler’s modest one-year deal, priced to yield 5.2%, was a key moment in the opening up of China’s domestic market.

Liu Shiyu, then deputy governor of the PBoC, now the chairman of the CBRC, applauded the deal at a ceremony before the bookbuilding kicked off.

“Allowing foreign non-financial issuers to tap the interbank bond market will promote the cross-border use of renminbi, two-way opening-up of China’s capital market as well as renminbi’s capital-account convertibility,” he said.

As a rulebook on Panda bonds was not in place, Daimler provided a test ground for regulators and underwriters.

After lengthy discussions with Chinese regulators, Daimler was able to avoid extensive documentation work by opting for a private placement, which allowed it to issue without publishing earnings in Chinese or obtaining domestic credit ratings.

Its experience also contributed to an informal framework for Panda bonds when the market was opened to more diverse offshore issuers one-and-half year later.

HSBC and Bank of China (Hong Kong) each issued Rmb1bn of three-year Panda bonds via public offerings in September 2015, the first Panda bonds from offshore commercial banks.

Sovereign issuers including South Korea and Poland later joined the queue as China was keen to encourage foreign participation in pursuit of the renminbi to be recognised as a reserve currency in the International Monetary Fund’s basket of Special Drawing Rights.

Daimler proved that onshore private placements could be an alternative source of funding for global companies with Chinese operations. It used up an initial Rmb5bn Panda bond programme and registered another Rmb20bn quota in 2016. Bank of China was the sole underwriter on the first deal.

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