IFR Asia – June 30, 2018

existing quota holders, and this
could in fact make bonds rally,
just like early last year when
there were no new quotas
approved,” said a DCM banker
with a foreign bank, who said
he was clarifying the new
approach with the NDRC.
The initial reaction to the
news, however, was negative.
US dollar notes of Chinese
developers were down 1–
points last Thursday.

SHORT-DATED NOTES
Bankers said the NDRC had
told underwriters that issuers
of short-dated US dollar notes
would have trouble registering
notes with longer tenors. It
did not say whether it would
issue a formal notice regarding
short-dated notes, the banker
said.
“The NDRC made it clear to
us that they did not want to see
any issuance of short-dated US
dollar notes in the near term,”
said a banker briefed on the
verbal guidance.
Under the current regulatory
regime, issuers are not required
to register offshore bonds with
a tenor of less than one year
with the NDRC in advance.
“As the NDRC does not
have the mandate to oversee

short-dated notes at the

moment, it wishes to get across

the message to issuers via

intermediaries,” the banker

said.

In the statement posted last

Wednesday, the NDRC said it

was working on a new rule

on a system of foreign debt

registration which would clarify

the qualification and criteria

for issuing offshore debt. Short-

dated paper may be addressed

in that rule, the banker said.

“We’ve put on hold 364-

day deals to wait for clearer

regulatory guidance after the

news. We don’t want to make

NDRC unhappy and affect the

quota approval of our future

deals,” a banker from a Chinese

brokerage said.

Since the first public offering

of short-dated US dollar bonds

from a Chinese issuer in May

2017, most issuers in this

format have been Chinese

developers and LGFVs.

Issuing short-term offshore

debt allows Chinese borrowers

to address immediate funding

needs without the need to

register their plans with

mainland regulators. That

avoids any delays in the

approval process, but leaves

companies under pressure

to refinance within a short

deadline.

USE OF PROCEEDS

The NDRC said in the statement

last week that risk prevention

regarding foreign debt should

be strengthened after a

significant growth in offshore

debt in the past two years,

particularly from property

developers and LGFVs.

The NDRC said developers

should primarily use the

proceeds from foreign debt

issues to repay debt. The use

of proceeds for real estate

development projects and for

replenishment of working

capital would be limited, it said.

The NDRC would also ask

property developers to submit

letters of commitment over the

use of proceeds from foreign

debt.

Bankers said developers

had already followed the

requirement regarding the

use of proceeds in recent deals

and many of them could still

issue under existing quotas

registered with the NDRC.

“Despite the heavy supply

(from developers) earlier this

year, many of them still sit on

large amounts of unutilised

quotas as the weak market

backdrop does not allow them

to use up all their quotas,” a

banker said.

“By coming out and making

such a cleary stated public

announcement, NDRC is

sending a strong message to

both issuers and investors

which should bring more

confidence to the prospect of

healthy development of the

market given more prudent

regulatory oversight,” UBS

wrote in a research note.

In the first five months of

this year, Chinese firms issued

a total of US$99.2bn of foreign

debt, close to the volume issued

in the same period last year,

NDRC said. In 2017, the total

issuance of foreign debt was

US$235.8bn. „

For daily news stories

visit http://www.ifrasia.com

the Asia-Pacific region on the
same day, as Westpac, rated
Aa3/AA–, raised ¥76.3bn from
an offering of five-year Samurai
bonds, brushing aside the
scandals that have plagued the
Australian banking sector.
The deal is Westpac’s first
in the Samurai market since it
sold ¥85bn of five-year notes in
January 2016.
The new issue, with a 0.32%
coupon and a 17bp spread
over swaps, attracted strong
interest from a wide variety of
investors, including insurers,
domestic banks, trust banks,
asset managers, specialised
banks and regional banks.
Bankers on the deal said they
were impressed by regional
investors’ strong appetite.
“What is obviously different

from [the issuer’s] deals in the

past is strong demand from

regionals,” said a banker on the

deal.

“I think the regional

investors participated because

of [the appeal of ] the spread

and absolute level for these

credit ratings,” another banker

on the deal added. Indeed,

the 0.32% coupon looked very

attractive compared to five-

year JGBs, rated one notch

lower at A1/A+, which yield

-0.11%.

He stressed the diversified

participation as one of the

highlights of the deal. “We

were able to ‘liven up’ the deal

by drawing demand from a

wide variety of investors, not

necessarily relying only on big

investors.”

Nonetheless, the deal landed

at the wider end of the initial

price guidance of 15bp–17bp

due to the spread widening of

Australian banks in dollars.

Australian banks have

been plagued by scandals

lately, as the country’s Royal

Commission continues to

unearth cases of bad behaviour,

but such headlines did not

affect the Westpac Samurai

deal. “We heard almost no

concerns about the issuer or

the sector,” said the second

banker.

Daiwa , Mitsubishi UFJ Morgan

Stanley , Mizuho , Nomura and

SMBC Nikko were the joint lead

managers. „

“We’ve put on hold

364-day deals to wait

for clearer regulatory

guidance after the

news. We don’t want to

make NDRC unhappy

and affect the quota

approval of our future

deals.”

“Not every investor is 100% okay with Korean

bonds, but the majority of investors show strong

appetite, especially because of the recent supply

drought from South Korea. I think this trend will

continue.”