June 14, 2017 / 10:23 AM / a month ago

China's EXIM Bank plans more dollar, euro-denominated bonds this year

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A man walks past the lobby of the Export-Import Bank of China (EXIM) headquarters in Beijing, China June 13, 2017.Thomas Peter

BEIJING/HONG KONG (Reuters) - The Export-Import Bank of China (EXIM) plans to issue up to another $4 billion in euro- and dollar-denominated bonds this year, on top of $4 billion issued so far, as Beijing's Belt and Road initiative drives demand for foreign currency funds.

In a rare interview, Wang Kai, general manager of the policy lender's treasury department, said EXIM expects to issue $2-$4 billion in dollar- and euro-denominated bonds in the second half of the year. It issued $5.1 billion of euro and dollar bonds last year.

"Our need for foreign currency funds is diversifying by the day, and the amount will steadily grow," Wang told Reuters late on Tuesday.

EXIM, owned by the finance ministry and central bank, plays a critical role in providing export financing and government-directed lending to other countries.

China's President Xi Jinping last month pledged more than $100 billion for the Beijing-led Belt and Road initiative that aims to boost infrastructure and trade links between Asia, Africa, Europe and beyond.

EXIM has agreed to support more than 1,200 Belt and Road programmes worth more than 700 billion yuan ($103 billion) - equivalent to 30 percent of the bank's total end-2016 loan volume.

Last month, the bank launched a $30 billion Eximbank Funding Programme, comprising $27 billion in medium-term notes and $3 billion in euro commercial paper.

The finance ministry said on Tuesday that China plans to issue its first dollar-denominated sovereign bonds since 2004, which Wang said could indicate how much pricing has been impacted by Moody's recent downgrade on China's sovereign ratings.

"The international market will gradually realise China's credit strength. Based on current pricing levels, there's actually space (for the credit spread) to narrow," Wang said.

Longer-Term Maturity

EXIM and two other Chinese policy lenders - China Development Bank and Agricultural Development Bank of China - also had their long-term issuer ratings downgraded by Moody's.

The downgrade "could be a mistake", Wang said, as China is moving to address its debt problems and promote stable development.

A week after the one-notch downgrade, EXIM's head office and its Paris branch launched a dual-currency offering. Investor demand allowed the issuer to price the new bonds flat to existing bonds as orders were two and three times the euro tranche and the dollar tranche, respectively.

"As a sovereign-linked issuer, we have the responsibility to do a benchmark offering to stabilise the market and provide the market with a clear direction," Wang said.

Without giving a timeframe, Wang said he expected EXIM to issue more long-term, fixed-rate dollar-denominated debt, which would cap liability costs in the long run, pointing to the flattening U.S. treasury yield curve and market expectations of two U.S. interest rate hikes this year.

EXIM, he said, would consider issuing dollar-denominated bonds with maturities of up to 30 years. Presently, the longest maturity for EXIM's dollar bonds is 10 years.

The bank also plans to increase its euro-denominated bond programme and gradually lengthen the maturity to more than 7 years, from the current 5-year maximum, Wang said.

Separately, EXIM plans to raise 650 billion yuan through the sale of yuan-denominated bonds this year, up from 633 billion yuan in 2016, he said, adding the bank would consider issuing supplementary capital to boost financial strength. EXIM's capital structure mainly comprises Tier-1 capital.

($1 = 6.7972 Chinese yuan renminbi)

Reporting by Shu Zhang and Umesh Desai; Editing by Ian Geoghegan

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