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China vows more bond connections
Emerging Markets PBoC promises easier access through trading link, Panda market
BY INA ZHOU
China has pledged to further
improve access for foreign
issuers and investors to the
world’s third-largest bond
market through a streamlined
Bond Connect link and a
revamped Panda bond market.
/NûTHEûlRSTûANNIVERSARYûOFûTHEû
introduction of the Bond
Connect mechanism last
Tuesday, the People’s Bank of
China announced several
measures that are likely to drive
MOREûINmOWSûVIAûTHEûTRADINGûLINKû
and pave the way for Chinese
bonds to be included in major
international indices.
“The PBoC and the SAFE will
continue to promote opening up
of China’s bond market and to
create a favourable market
environment for overseas
investors,” Pan Gongsheng,
deputy governor of the PBoC and
administrator of the State
Administration of Foreign
Exchange, said at a ceremony in
Hong Kong.
Foreign investors currently
hold 1.9% of onshore Chinese
bonds, up from 1.1% when the
Bond Connect link was launched
in July 2017.
As of the end of June, 356
overseas entities had accessed
China’s bond market via the
NEWûROUTE ûACCORDINGûTOûOFlCIALû
data. Trading volumes in June
were Rmb131bn, up 97% on the
previous month.SMOOTH CONNECTION
Pan’s speech addressed some
of foreign investors’ key
concerns about the link. He said
full accessibility of delivery
versus payment (DVP)
settlement was expected in
August and that tax issues
related to onshore bond
investments via Bond Connect
WOULDûBEûCLARIlEDûSOONOnshore repo and derivatives
will also soon be available to
offshore investors via Bond
Connect, Pan said.
Meanwhile, transaction fees
via the current electronic
platforms will be cut by 50% for
offshore investors and more
international electronic trading
platforms will be allowed to join
the scheme, he said.
“The PBoC is actively
promoting cooperation with
other mainstream international
electronic trading platforms
including Bloomberg for the
Bond Connect scheme,” Pan
said. Currently, Tradeweb,
majority-owned by Thomson
Reuters, is the main interface for
offshore investors under Bond
Connect. Thomson Reuters also
owns IFR.
Offshore investors welcomed
these initiatives while
expressing hope for a detailed
implementation timetable.“The Bond Connect link
DElNITELYûHASûTHEûPOTENTIALûTOû
BECOMEûTHEûMOSTûEFlCIENTûANDû
probably the cheapest channel
to access China’s bond market
once the DVP and tax issues are
resolved,” said a Hong Kong-
based fund manager.
“The tax issue is particularly
thorny. We know we are
required to pay withholding tax
under the Bond Connect
scheme, but we don’t know how
and which agency to pay the tax
to,” he said.
Smooth cross-border
connectivity is one of the
prerequisites to the inclusion of
Chinese bonds in international
indices.
In March, Bloomberg
announced that it planned to
add renminbi-denominated
bonds to its Bloomberg Barclays
Global Aggregate Index from
next April, which would make it
THEûlRSTûOFûTHEûTHREEûMAJORûINDEXûRadisson deal turns eyes to portability
Bonds Investors show growing resistance to portability clauses
BY YORUK BAHCELI
The emergence of a report that
HNA is exploring a sale of hotel
chain RADISSON on the same day
the latter issued high-yield
bonds has turned market
attention to the notes’
portability to a potential new
owner.
On June 29, only hours after
2ADISSONûPRICEDûITSûõMûlVE
year non-call two debut
high-yield bond issue,
Bloomberg reported that
majority shareholder Chinese
conglomerate HNA is exploring
a sale of Radisson.
A representative for Radisson
told IFR the news was
“speculation” and declined to
comment further. JP Morgan, sole
bookrunner on the bond deal,
declined to comment.
Radisson’s senior secured note
offering came with portability,
which allows the issuer to
override a 101 put if it changes
ownership, provided its leverage
is below 1.75 times pro forma
earnings, or unless it is acquired
by a HNA portfolio company.
The news came as a surprise
to some investors and four told
IFR they were not informed of a
potential sale during the
roadshow.
“It was unusual and a bit
wrong. We certainly asked [about
a sale] and they certainly denied
that,” said one of the investors
who participated in the deal.
Another of those investors
said he was told it was a “matter
for the shareholder” when he
asked about a potential sale.
Others said no one should be
surprised about a potential sale
given that HNA has recently
BEENûOFmOADINGûASSETSûINûORDERû
to deleverage following a heavy
acquisition spree.“The appropriate level of
disclosure is necessarily a very
FACT
SPECIlCûQUESTION ûANDû
requires among other things
weighing the materiality of the
event against probability of its
occurrence,” said Natalia
3OKOLOVA ûCOUNSELûATûLAWûlRMû
Ashurst.
There was consensus among
market participants that
Radisson paid a premium when
pricing the notes for its
ownership by HNA. The paper
was bid at 100.62 on Wednesday,
according to Tradeweb data,
AFTERûBEINGûPRICEDûWITHûAûû
OID.PORTABILITY RESISTED
Investors are starting to show
growing resistance to portability
clauses in recent deals.
According to data from
Covenant Review, just over 27%
of high-yield deals sold in 2018have been priced with a
portability clause. That
compares with around 60% of
high-yield transactions in 2017,
according to Moody’s.h&ROMûûWEûSAWûAûSTEADYû
rise in the number of deals
including a portability clause,”
said Lisa Gundy, senior covenant
OFlCERûATû-OODYS
“In 2018, we have seen the
clause removed during the
syndication process, and even if“Portability is not
accepted in the US,
but our market has
accepted it. Maybe
it’s about time that
you have an example
of why you might not
want to sacrifice that
protection”