October 15, 2015 / 8:39 AM / 2 years ago

Country Garden, China Merchants plan Panda bonds

HONG KONG, Oct 15 (IFR) - Country Garden and China Merchants Group Hong Kong (CMHK) are planning to issue Panda bonds, coming on the heels of the recent deals by Bank of China (Hong Kong) and HSBC which inaugurated the new market.

Country Garden is examining a potential issue through its Hong Kong entity before the end of this month, even though the coupon may be slightly higher than a domestic bond issued through its onshore business, according to a company official. The property developer's onshore subsidiary had a 6 billion renminbi ($946 million) quota for domestic bonds, but has already issued the full amount.

CMHK is also looking to issue 500 million renminbi of one-year corporate Panda bonds, according to market sources.

"We met some Chinese potential issuers of Panda bonds in Hong Kong in the past few days that showed interest in Panda bonds," said one of the sources.

The Panda market is intended to allow overseas borrowers to access onshore renminbi funds.

The Panda market will allow issuers to take advantage of cheaper borrowing costs in China.

Chinese property developer China Vanke recently issued onshore five-year bonds of a 5 billion renminbi at 3.5 percent. Meanwhile, Vanke's $400 million June 2019s were yielding 4.5 percent.

Guidelines on the usage of proceeds also appear to be less restrictive, compared with rules PRC issuers have to follow when selling debt offshore.

The offerings of BOCHK and HSBC already suggest that issuers will be able to use the proceeds overseas - a big departure from the PRC's strict capital controls.

However, for now, some prospective issuers are likely to populate the immediate pipeline as a means to promote their Panda underwriting capabilities, a move that more Chinese banks are contemplating, according to a banker familiar with the related market.

The banker said the market would have to develop further for foreign companies to take interest in issuing such bonds. China has yet to publish rules allowing more foreign issuers to sell Pandas.

"I'm still waiting to see how this market develops before bringing foreign corporate issuers. This won't be an easy feat because only deals from well-known blue-chip companies will work."

The proposed offering comes shortly after BOCHK and HSBC opened the Panda market at the end of last month. Both issued 1 billion renminbi three-year bonds at 3.5 percent.

Reporting By Ina Zhou and Frances Yoon of IFR, and Clare Jim of Reuters; editing by Dharsan Singh and Daniel Stanton

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