October 24, 2004
China's successful sale of US$1.7 billion worth of dual-tranche sovereign bonds on the international market indicates foreign investors' full confidence in the country's future economic prospects, economists said.
The country sold a US$1.2 billion 10-year bond with an annual interest rate of 4.25 per cent in London on Thursday.
It sold another US$500 million five-year bond with an annual interest rate of 3.75 per cent.
Wei Qi, a senior analyst with Beijing-based China Securities, said the successful offering indicated the bonds were attractive to foreign investors.
"This will help increase China's reputation on the international market," she said.
The bond offering will also help develop a yield curve on its international bonds, providing Chinese companies with an indication of future borrowing rates.
Along with China's rapid economic development over the past two decades, the credit rating for China's sovereign bonds improved considerably, Wei said.
"As a result, the cost for debt issuance dropped," she added.
The bond offering could be considered as a kind of debt re-arrangement at this point.
"The government bought bonds with a higher interest rate, but sold new bonds with a lower interest rate," she said.
Wang Zhao, a senior researcher at the State Council's Development Research Centre, said the bond offering means more than just raising cash from the global market.
In fact, China does not need foreign money, because it has sufficient foreign exchange reserves, he said.
Figures from the National Bureau of Statistics suggest that the country's foreign exchange reserves reached US$514.5 billion by the end of September, an increase of US$111.2 billion from the beginning of this year.
The bond issuance indicates to international investors that China could be an ideal area for investment, he said.
"The bond offering could also help beef up ties between China and international markets," he said.
Last month, China Development Bank -- the largest of the country's three policy banks -- issued US$1 billion worth of global bonds in New York.
The bank has not raised funds on the international capital market since 2000.
Niu Li, an economist with the State Information Centre, said domestic companies and banks should be encouraged to raise money through various channels.
"Since China's economic strength has been increasing, domestic banks should be encouraged to issue foreign money bonds," Niu said.
The bank's bonds were rated by the international rating agency Standard & Poor's (S&P) as "BBB plus."
The rating reflects the full support for the bonds from the Chinese Government, their sole owner, and the bank's key role as the country's pre-eminent development institution to support major public investment.
Its efforts are particularly apparent in the central and western regions, according to S&P credit analyst Ping Chew.
China Development Bank enjoys unique access to short-term liquidity from the central bank to support debt service payments and to bridge timing differences between the receipt of debenture proceeds and project loan payments, Chew said.
"Although this is not equivalent to a sovereign guarantee on the bank's debt, it is stronger and more explicit support than that provided to other Chinese financial institutions," he said.
Chew noted the bank's assets quality seems to be better than most in the Chinese banking system, due to the bank's own tight credit controls, and its implicit preferred creditor status with local governments.
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