What is wrong with the bond sale?
2017-10-27 07:57阅读：
What happened to China’s dollar bonds sales in 1998? One
Hong Kong analyst looks back
SCMP, Wednesday, 25 October,
2017
China's finance ministry is meeting investors in Hong Kong on
Wednesday to sell US$2 billion in bonds.
A similar US$1 billion bond sale was held in 1998 for global
investors, including in Hong Kong.
The previous sale nearly 20 years ago was hailed by Beijing as a
sign of international confidence in China’s economic prospects in
the aftermath of the Asian financial crisis.
But Joe Zhang Huaqiao, then head of China research at HSBC
Securities, told the South China Morning Post
that the bond issuance was ‘miserable’ and more like a
‘lose-lose’ transaction.
Zhang called the bonds “too expensive” for the mainl
and because it did not need the cash, according to the
Post.
On the same day his comments were published, Zhang was sacked from
the brokerage because he angered some HSBC executive as another
unit, HSBC Markets, was one of the bonds’ underwriters, the
Post later reported on December 16,
1998.
A lot has changed over the last two decades.
China’s economic size has expanded from US$1 trillion in 1998 to at
least US$12 trillion this year, the country’s foreign exchange
reserves have surged from less than US$150 billion to over US$3
trillion and the Hong Kong market is now dominated by Chinese
institutions.
After Zhang left HSBC Securities, he worked for different
organisations including UBS over the next 19 years.
Zhang, now the chairman of China Smartpay, a Hong Kong-listed
payment service firm, said he has not changed his opinion that
dollar bond sales by Beijing are a meaningless and absurd act,
partly because China is now sitting on US$3 trillion
reserves.
“My views have not changed even after 19 years,” Zhang told the
Post in an interview this week. “It is still
ridiculous for Beijing to pay higher interests to bondholders while
it is investing in low-yielding US treasuries.”
Zhang questioned why China felt the need to pursue a bond sale for
the relatively small amount of US$2 billion.
“It’s like a person trying to borrow two cents and asking people to
put an interest on it,” Zhang said. “The smaller the amount, the
less the meaning. In an extreme example, if the ministry just tells
banks in Hong Kong that I need US$20,000, many banks may just be
happy to give it money for free.”
Zhang added that sporadic sovereign dollar sales from Beijing –
China has not sold any dollar bonds since 2004 – will not help
provide a benchmark for dollar bond sales by Chinese institutions
and companies.
“Dollar bonds issuance by Chinese companies boomed while the
finance ministry was idle – no one has been looking at the finance
ministry to give a benchmark,” Zhang said.
Chinese institutions and companies sold more than 250 dollar bonds
last year, raising some US$120 billion.
China’s finance ministry said in a statement on Tuesday that its
bond issuance was aimed at setting a “benchmark” for China’s
foreign currency bonds and to “help international investors
understand China’s economy”. Meanwhile, it was also intended to
support Hong Kong as an international financial hub through the
dollar bond sales and that raising money was not the main
purpose.
“The Chinese government doesn’t have any demand to raise money from
abroad,” said the ministry. “Fundraising is not the primary
consideration.”
There appears to be little doubt, however, that the China sovereign
dollar bond will be in demand.
Hong Hao, research head at Bocom International, an investment
banking and brokerage arm at Bank of Communications in Hong Kong,
said the bonds would be sold out “in an hour”.
In a sign of confidence in the country’s first dollar sovereign
bond sales since 2004, the finance ministry has decided not invite
any rating agencies to rate the bonds this time after it was
angered by the downgrade by Moody’s and S&P Global Ratings of
China’s sovereign rating earlier this year.
The finance ministry, in explaining the bond issuance, reiterated
the downgrade by the two rating agencies was a misread of China’s
economic fundamentals and development potential.
“China is deliberately giving a cold shoulder to the international
rating agencies” as Beijing is unhappy about the rating results,
said Shen Jianguang, chief economist at Mizuho Securities
Asia.
Beijing has hired 10 joint “lead underwriters” and joint
bookrunners, including Citigroup, Deutsche Bank, HSBC and Standard
Chartered Bank, along with six Chinese banks, namely Agricultural
Bank of China, Bank of China, Bank of Communications, China
Construction Bank, Industrial&Commercial Bank of China and
China International Capital.
In 1998, the mainland’s bonds were priced 280 basis points over US
Treasuries of comparable maturity, after it drew bids worth US$1.8
billion.
http://www.scmp.com/news/china/economy/article/2116919/what-happened-chinas-dollar-bonds-sales-1998-one-hong-kong?utm_source=Direct
