Panda Bonds: Insights from AIIB
In April, the Luxembourg Stock Exchange (LuxSE) welcomed the first panda bond to our exchange - a CNY 3 billion bond issued by the Asian Infrastructure Investment Bank (AIIB).
To make this next important step in the opening up of China's once closed off onshore bond market, we sat down with Darren Stipe, Head of Funding at AIIB to learn more about panda bonds and the bank's 4 years of activity in the market.
In March of this year, we successfully priced an CNY 3 billion 3-year panda bond, which is now registered on LuxSE’s Securities Official List. The transaction attracted over 20 global investors, half of them were new investors to AIIB.
The final book size reached CNY 7.77 billion, making it 2.6 times oversubscribed. Given the strong demand from investors, pricing tightened 12bp from the wide side of the pricing guidance and landed at 2.33%, which represents a spread of 9bp to China Development Bank.
We also achieved a nice balance of 70% demand from onshore investors and 30% demand from oversea investors. The deal received a broad range of investor demand, including city/rural commercial banks, state-owned/joint-stock commercial banks, onshore foreign banks, offshore central banks, and offshore commercial banks.
As an internationally triple-A rated multilateral development bank, AIIB offers investors high credit quality paper in benchmark sizes. Although panda bonds only account for around 5% of our annual borrowing programme, it provides us with a very unique diversification in funding sources.
With the growth of our business and investment pipeline, we will continue to develop its presence in the panda bond market and will continue its effort to broaden the investor base in mainland China. We have learned that onshore investors can be receptive to the value proposition of an internationally triple-A rated issuer, especially when they believe the issuer will take steps to improve the liquidity of its lines.
We also see that onshore investors are indispensable for the long-term success of a panda programme, where support from offshore investors depends greatly on conditions between comparative markets.
In addition, Chinese regulators’ continued efforts to enhance the registration process and issuance mechanism for panda bonds has also made it easier for both overseas issuers and investors to access this market.
In recent years, we have been engaging with domestic market players as well as regulators to discuss potential development and further internationalisation of China’s bond market. We have committed to bring AIIB’s experience from the international capital markets to China’s bond market.
In that spirit, we have been in close collaboration with NAFMII on several policy updates, including guidelines on green, social, and sustainability bond, and pilot program on primary market issuance mechanism.
To make this next important step in the opening up of China's once closed off onshore bond market, we sat down with Darren Stipe, Head of Funding at AIIB to learn more about panda bonds and the bank's 4 years of activity in the market.
What is a panda bond and can you tell us a little more about this latest issuance?
Panda bond refers to a CNY denominated bond issued by a non-Chinese/offshore entity in China’s onshore bond market that is available to both onshore and offshore investors.In March of this year, we successfully priced an CNY 3 billion 3-year panda bond, which is now registered on LuxSE’s Securities Official List. The transaction attracted over 20 global investors, half of them were new investors to AIIB.
The final book size reached CNY 7.77 billion, making it 2.6 times oversubscribed. Given the strong demand from investors, pricing tightened 12bp from the wide side of the pricing guidance and landed at 2.33%, which represents a spread of 9bp to China Development Bank.
We also achieved a nice balance of 70% demand from onshore investors and 30% demand from oversea investors. The deal received a broad range of investor demand, including city/rural commercial banks, state-owned/joint-stock commercial banks, onshore foreign banks, offshore central banks, and offshore commercial banks.
AIIB has been issuing panda bonds since 2020. What have the last 4 years taught you about bringing such securities to the market?
At AIIB, we see the panda bond market as one of its strategic markets, and we’ve committed to being a frequent issuer in this market to build a liquid reference curve.As an internationally triple-A rated multilateral development bank, AIIB offers investors high credit quality paper in benchmark sizes. Although panda bonds only account for around 5% of our annual borrowing programme, it provides us with a very unique diversification in funding sources.
With the growth of our business and investment pipeline, we will continue to develop its presence in the panda bond market and will continue its effort to broaden the investor base in mainland China. We have learned that onshore investors can be receptive to the value proposition of an internationally triple-A rated issuer, especially when they believe the issuer will take steps to improve the liquidity of its lines.
We also see that onshore investors are indispensable for the long-term success of a panda programme, where support from offshore investors depends greatly on conditions between comparative markets.
What’s driving the growth of this area of the market
The growth in panda bond issuance volume reflects the increasing demand and depth of the market. From our conversations with global investors, one trend that is definitely worth highlighting is that more of them are managing CNY now. More central banks and asset managers are investing in China’s bond market, and benefiting from ample liquidity and decorrelation from other major bond markets.In addition, Chinese regulators’ continued efforts to enhance the registration process and issuance mechanism for panda bonds has also made it easier for both overseas issuers and investors to access this market.
What does the future of the onshore Chinese debt market look like, in your opinion?
China has the world’s second largest bond market, yet international participation is still minimal. Going forward, as China continues opening up its capital markets, we see further growth potential in the panda bond market.In recent years, we have been engaging with domestic market players as well as regulators to discuss potential development and further internationalisation of China’s bond market. We have committed to bring AIIB’s experience from the international capital markets to China’s bond market.
In that spirit, we have been in close collaboration with NAFMII on several policy updates, including guidelines on green, social, and sustainability bond, and pilot program on primary market issuance mechanism.
