China's opening-up of stock exchange bond market to step up financing for B&R projects

In order to open up the stock exchange bond market to the outside world, guide the market in serving the Belt and Road (B&R) Initiative, and facilitate financial operations in countries and regions along the B&R, Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) have jointly released a notice on developing the pilot “Belt and Road” bond business recently. 

Insiders noted that the issuance of B&R bonds have broadened the channels of direct financing for B&R Initiative and at the same time reflected the spirit of finance serving the real economy and national initiatives, which will further help intensify financial support for regional economic development and promote the two-way opening of the domestic bonds market.

--Three financing modes to function in a row

The notice specified the main institutional arrangement of B&R bonds, marking a new step of the stock exchange bond market towards serving the B&R Initiative.

According to SSE, the exchange has carried out in-depth studies and promotion of B&R bonds to give full play to the role of the stock exchange bond market in serving the B&R construction.

In addition, the notice is a significant move by the stock exchanges to further implement national initiatives, extend the characteristic service chain and serve the B&R Initiative based on their previous experience in piloting B&R businesses, said an SZSE senior.

“The notice has broadened the channels of direct financing for the B&R construction. It will also attract more social and international capital to participate in the B&R construction,” said Cui Jian, an analyst at Bohai Securities.

Moreover, the notice specified that the stock exchanges will specially designate staff responsible for B&R bond declaration and review so as to improve the efficiency of B&R bond listing. At the same time, it proposed the establishment of B&R bonds sector, besides duly releasing the Belt and Road Bond Index in association withsecurities index construction institutions and perfecting the mechanism of B&R construction investment and financing.

-- Companies propose to issue bonds worth 50 billion yuan

In recent years, the stock exchange bond market has been making beneficial attempts at boosting B&R financial integration and serving the B&R progress.

In this regard, SSE has been promoting the issuance of B&R bonds. In terms of “bringing in”, in March 2017, Russia’s UC RUSAL issued the first panda bond of 1 billion yuan on SSE among B&R enterprises. Meanwhile, in terms of “going global”, in January 2018, Hongshi Holding Group issued a bond of 300 million yuan on SSE to promote the B&R construction in Laos, becoming the first bond issued by a Chinese enterprise for B&R development.

Under the national initiative, SZSE has been working to shape an innovative mode for investment and financing for B&R. In this regard, it has successfully launched a number of pilot B&R bond projects.

 Listed on the main board market of SZSE, Hengyi Petrochemical Co., Ltd. issued a B&R corporate bond on March 5, marking the further enrichment of B&R bond issuers.

According to statistics, as many as seven domestic and foreign enterprises have gained approval from the China Securities Regulatory Commission (CSRC) or received no objection letters from SSE and SZSE for issuing B&R bonds, with a proposed total amount of 50 billion yuan. In addition, four of them have issued B&R bonds worth 3.5 billion yuan.

B&R bonds, as necessary instruments for the Chinese capital market serving the B&R Initiative, will systematically enhance the value of the Chinese capital market in the global financial market, said Wang Sheng, executive head of the investment banking department with China International Capital Corporation Limited, adding that these bonds will enrich bond market issuers and bond varieties, and help investors find better investment opportunities. 

--Promoting capital market cooperation under B&R

The launch of B&R bonds will further open the financial market to the outside world, enhance international exchanges and cooperation, and further enrich its existing system of financial products.

“B&R special bonds can support overseas construction enterprises in seeking financing in China,  deepen these enterprises’ understanding of the Chinese market, promote the two-way opening of the domestic bond market, and further internationalize the Renminbi and boost its regional influence,” said Jiang Chao, chief macro bond researcher at Haitong Securities.

Meanwhile, SSE has recently negotiated with a number of B&R countries for the issuance of B&R corporate bonds and asset-backed securities. And the issuance is expected to further provide financial aid for the B&R construction.

In the next period, SSE will explore the possibilities of realising B&R equity financing. It also plans to cooperate with overseas stock exchanges in equity investment and other fields, and further improve the mechanism of B&R panda bond financing, thereby promoting and organizing capital market cooperation and building a community of shared interest and common destiny in the B&R capital market.

Through the notice’s release, SZSE aimed to employ diverse means for intensifying the promotion of B&R bonds, accumulate and consolidate experience gained from pilot projects, refine and improve relevant rules and supporting measures, steadily build its advantage in terms of the scale of B&R bond financing, improve the capacity of stock exchange bond market for B&R development, and support the creation of a new pattern for comprehensively opening up the capital market to the outside world.

At the same time, with the continuous opening of the stock exchange bond market, B&R bonds are expected to grow in both supply and demand in the future.

In terms of potential supply, the scale of B&R bonds is expected to grow steadily due to increasing financial demands of B&R projects, said Jiang, adding that in terms of market demand, as the policy support for B&R bonds is strong and most domestic issuers are central enterprises and outstanding private enterprises, the risk of issuance is low and the market demand for B&R bonds is expected to grow robustly.