Following the publication of relaxed regulations, there has been a steady stream of PRC issuers listed offshore looking to tap the local PRC debt markets with "Panda Bonds" issued domestically in the PRC by offshore entities.
This new breed of bonds are attractive to potential issuers as the coupon rate is much lower compared to U.S. Reg. S issues and are structured without a security package.
Demand for these bonds has also been driven by lower interest rates in China, coupled with a desire to hold debt in Renminbi due to the currency's recent decline against the U.S. dollar. Reports indicate that approximately RMB115 billion in Panda Bonds have been issued from December 2015 to the end of March 2016, a significant portion by Chinese developers. That said, it has not been plain sailing with concerns rising over the protracted regulatory and procedural delays with Panda Bonds, and restrictions on the issuers' ability to use offshore funds that have been raised domestically.
In contrast, Chinese-listed developers, have so far shied away from the Hong Kong debt capital markets but signs are that this may be about to change with the recent closing of China Aoyuan Property Group Limited's US$250 million Reg. S bonds which priced its offering at 6.25%, significantly lower than the developer's current borrowing costs, which are around 12%. In addition, the offering was massively oversubscribed indicating a high demand for high-yield dollar-denominated offerings.
Panda Bonds have been a welcome addition to the corporate debt landscape for offshore issuers but the China Aoyuan transaction is a reminder that Chinese corporates, listed offshore, will be able to take advantage of the different rates available in Hong Kong and domestically for a while to come.
Conyers Dill & Pearman is actively assisting PRC bond issuers in the Hong Kong and PRC debt markets. The Hong Kong office acted as Cayman Islands and British Virgin Islands counsel for China Aoyuan, led by Paul Lim and Rowan Wu.
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