Shot in the arm
The Asian Infrastructure Investment Bank passed another milestone in its funding strategy with a debut Panda bond that reset pricing expectations for a Triple A renminbi benchmark.
The Beijing-based multilateral development bank in June 2020 printed a well-received Rmb3bn (US$458m) three-year Panda bond in China’s interbank market at 2.4%, near the tight end of the indicative range of 2.3%–2.9%, as it turned to the renminbi to help fund its response to the coronavirus pandemic.
The bond, which is 0% risk-weighted in China, set a new reference for international issuers in renminbi with pricing as much as 23bp inside China Development Bank’s curve, the de facto benchmark for Panda bonds.
That feat underlined the appeal of the AIIB’s paper and the renminbi’s growing status as a reserve currency. At barely 10bp over China’s government curve, it also illustrated the growth in demand for renminbi bonds since China began opening the Panda market in the late 2000s: the Asian Development Bank paid 61bp over China’s government bonds back in 2009.
Despite a volatile rates environment as well as tight onshore market liquidity on the day of pricing, the AIIB was able to attract broad support from onshore and offshore high-quality investors, especially central banks.
International marketing was key. Final orders reached Rmb8.34bn, or 2.78 times the issue size, from more than 20 investors. Domestic investors were allocated 35% of the notes and international investors 65%.
It was the first issuer with international Triple A ratings to tap the Panda market since Chinese regulators streamlined issuance requirements in 2018, and the impressive pricing outcome is expected to attract more sovereign and multilateral issuers to the onshore Chinese market.
The sustainable development Panda is also the AIIB’s first local currency bond, adding to its quest to diversify its funding sources and engage with investors globally. The bank has registered a Rmb10bn quota with Chinese regulators.
Proceeds from the deal contributed to the AIIB’s regular operations, including its response to the Covid-19 pandemic.
Headquartered in Beijing, the AIIB is the first multilateral financial institution initiated by China, which owns a 31% stake. Its mission is to improve economic and social development in Asia, through a focus on sustainable infrastructure, cross-border connectivity and private capital mobilisation.
Bank of China was the lead underwriter and bookrunner on the transaction. BNP Paribas (China), China Construction Bank, China International Capital Corp and HSBC Bank (China) were joint lead underwriters. Credit Agricole CIB (China) was financial adviser.
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