China Dollar-Bonds Face Higher Bar in U.S. 

(Bloomberg) -- China’s offshore bond issuers have increasingly veered away from selling in the U.S. in recent years, thanks to a deepening pool of dollar liquidity back home in Asia. The trade war is now making Chinese borrowers all the rarer in America.

When Industrial & Commercial Bank of China Ltd., China’s biggest bank, canceled an offering of dollar bonds in the U.S. market last week, it showcased how much more difficult conditions now are for the country’s issuers.

“The trade-war overhang is clearly becoming a further challenge for Chinese issuers in building up the trust and confidence of the U.S. investor base,” said Jim Veneau, the Hong Kong-based Asia head of fixed income at AXA Investment Managers Asia Ltd.

So far this year, Chinese borrowers have sold about $10 billion of securities targeted for U.S.-based investors, which require greater regulatory compliance than those issued outside the country. That’s down from $33 billion during the same period four years ago. Chinese issuers in total sold $148 billion of dollar bonds so far this year, up from $86 billion in 2014.

ICBC’s surprise cancellation came weeks after a sovereign offering of Chinese bonds saw diminished American demand as trade tensions escalated.

Here are some further perspectives on the prospects for Chinese dollar-bond sales in the U.S.

‘Huge’ Uncertainty

Mark Konyn, chief investment officer at AIA Group:

• “It tells you a lot about current liquidity conditions and where investors are in terms of risk perceptions of China in the current environment,” he said.
• “There’s a huge amount of uncertainty around the full effects of the trade standoff and who it affects.”

Tilt to Asia

Alan Roch, head of Asia bond syndicate at Standard Chartered Plc:

• “The core investor base of China dollar deals is more so than ever in Asia.”
• “With the investor base continuing to grow in our region we expect that trend to continue, and therefore the share of deals marketed in 144 format to reduce,” he said, referring to so-called 144A sales that are targeted to the U.S.
• “One size never fits all though, and for some issuers and industries, onshore U.S. demand will remain important.”

‘Rare’ Issuers

Veneau at AXA:

• “The general U.S. investor premise on China, in particular the offshore dollar market, is that there is a lack of transparency, lower corporate governance standards and a structural weakness to offshore issues.”
• “That’s a tough hurdle for individual issuers to overcome, no matter how strong they may be.”
• “It’s the rare Chinese issuer that has achieved a level of comfort and trust from U.S. investors -- an issuer like ICBC would ordinarily be in that group of issuers.”

‘Little Incentive’

Raymond Chia, head of credit research for Asia excluding Japan at Schroder Investment Management Ltd:

• “Basically they have little incentive to add China risks,” he said of U.S. investors.
• “Overall market sentiment towards China” has been “weak despite a series of easing measures by Beijing.”
• “Supply from Chinese financials is always there and China property names keep coming as well -- so there’s supply risk against a challenging market backdrop.”

Higher Costs

Ng Kheng Siang, Asia Pacific head of fixed income at State Street Global Advisors:

• “Growing Sino-U.S. trade tension, uncertainty of such impact on economic activities, a lower Chinese growth outlook and other factors may affect investors’ appetite and spreads for Chinese issuers.”
• “Issuers are faced with a difficult choice of higher funding cost both offshore and onshore.”
• “Some may just have to bite the bullet to raise funds at higher costs if they need this as new working capital and roll over existing liabilities due to mature.”

To contact the reporters on this story: Gregor Stuart Hunter in Hong Kong at ghunter21@bloomberg.net;Narae Kim in Hong Kong at nkim132@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Chan Tien Hin

©2018 Bloomberg L.P.