China Firms Plan Up to $15 Billion in Overseas Bond Issues in Q4, Driven by Stimulus Boost, According to Bankers – Reuters

By Scott Murdoch

SYDNEY – Chinese investment-grade companies are preparing to raise between $10 billion and $15 billion in offshore bond offerings this quarter, driven by Beijing’s economic stimulus measures that are lowering fundraising costs and increasing borrowing interest, according to financial advisers.

This level of issuance is set to make it the highest amount of offshore debt raised in the fourth quarter in three years. Just last week, Chinese firms raised approximately $5.9 billion in dollar and euro bonds, marking the busiest week for offshore debt fundraising in 2024, as reported by Dealogic data.

"The positive momentum created by the stimulus measures, along with expected rate cuts from the Federal Open Market Committee, could encourage issuers who are agile to enter the market quickly, looking for opportunities in the upcoming weeks," said Xixi Sun, head of Greater China bond syndicate at Citigroup.

Recently, China has initiated a significant stimulus program, which includes cutting lending and mortgage interest rates, aimed at revitalizing the struggling property sector.

Additionally, the government is set to issue around 2 trillion yuan (approximately $285 billion) in sovereign bonds this year to stimulate household consumption, according to sources familiar with the situation.

Ratings agency Fitch noted in a recent report that the pace of China’s credit condition loosening was faster than anticipated.

Last month, the Federal Reserve reduced interest rates by 50 basis points, setting the U.S. economy on a trajectory of lower rates.

As a consequence of the stimulus initiatives, credit spreads for Chinese investment-grade firms have tightened by 10 to 20 basis points, reflecting an improving risk appetite among investors, according to bankers. This trend is expected to lower funding costs for Chinese companies.

Meituan, the largest delivery platform in China, successfully raised $2.5 billion in a two-tranche dollar bond last week, marking the first technology sector deal in 2024. The high demand for this offering allowed for pricing to be up to 30 basis points lower than initially anticipated.

Corporate expansion spurred by Beijing’s stimulus package is likely to result in new funding requirements and increased financing activities through bonds and other avenues, noted Mandy Zhu, UBS vice-chairman of global banking for Asia. Zhu highlighted "strong momentum in the bond market and robust investor demand in both primary and secondary markets."

The anticipated $15 billion in overseas bond offerings this quarter for Chinese companies contrasts with the $13.8 billion raised during the same period last year and the $11 billion from the fourth quarter of the previous year, based on LSEG data.

This uptick in overseas debt issuance may persist into next year as Chinese firms secure necessary regulatory approvals and quotas, according to Citigroup’s Sun.

For the first three quarters of 2024, Chinese companies raised the equivalent of $63.33 billion in dollar, euro, and yen bonds, a significant increase from $44.1 billion during the same timeframe last year.

Despite this growth, China’s offshore debt issuance remains over 50% lower than the peak of $150.1 billion achieved in the first three quarters of 2020, a period when global pandemic stimulus measures led to unprecedented levels of such issuance.