The Province of British Columbia, Canada, issued its first Panda bond in China’s domestic bond market Jan. 21, 2016, officially accessing one of the world’s largest capital markets and strengthening relations with a key partner in the Asia-Pacific region.
B.C. Finance Minister Michael de Jong made the announcement at the Beijing Financial Assets Exchange, where he observed the bond’s ‘book-building’ with representatives from the Bank of China and HSBC, both joint lead underwriters on the bond, and representatives of the National Association of Financial Market Institutional Investors, which regulates the domestic bond market.
The three-year-term bond, priced at 2.95%, raised 3 billion Renminbi (RMB), or about $665 million Canadian. Proceeds were immediately reinvested in an offshore RMB-denominated investment with Singapore’s United Overseas Bank, which will generate a positive return for taxpayers and protect against foreign exchange risk. Net income on the RMB investment will be used to support and expand the Province’s trade and investment offices in China.
Two of the three banks involved in the project — HSBC and United Overseas Bank — have their Canadian headquarters in Vancouver, while Bank of China has a strong presence in Vancouver with plans to grow.
The bond was almost twice-oversubscribed by domestic investors in China, including policy banks, commercial banks, fund managers and brokerage firms.
Last month, B.C. became the first sovereign government to establish a Panda bond program in China’s onshore RMB market – the world’s third-largest capital market. The Province received approval for a 6 billion RMB program, including pre-approved conditions on subsequent bonds to a maximum of 3 billion RMB each and terms of up to 10 years.
In 2013, British Columbia was the first foreign government to issue a bond into China’s offshore RMB market. That bond and a subsequent bond in 2014 together raised approximately $1 billion Canadian. In November 2014 the People’s Bank of China designated Canada as an RMB trading hub, the first in North America. That designation allows the use of RMB in B.C.-China trade and more efficient investment for Canadian financial institutions.
Finance Minister Michael de Jong –
“This bond represents our commitment to build stronger, more robust ties with China’s financial and economic markets and the broader Asia-Pacific region. British Columbia’s triple-A credit rating gives our Province access to markets and investors we couldn’t otherwise reach, and China’s onshore market provides access to a diverse, relatively untapped group of investors.
“This bond issue underscores our confidence in China’s efforts to internationalize the Renminbi and open its capital markets to international investors, and I appreciate the collaboration and hard work of our partners in this issuance, particularly the People’s Bank of China, the National Association of Financial Market Institutional Investors, HSBC and the Bank of China.”
Sun Xinxia, head of Debt Capital Market team, Bank of China Head Office –
“The success of British Columbia’s Panda bond issuance has broadened the scope of issuing entities in China’s inter-bank bond market, expanded the Renminbi financing channels for foreign governments, and acted as an important role in Renminbi internationalization and innovation of China’s capital market. Bank of China is honoured to be the joint lead underwriter and bookrunner of this remarkable bond issuance.”
Alexi Chan, global co-head, Debt Capital Markets, HSBC –
"Today's landmark onshore Renminbi bond for the Province of British Columbia represents another important step in the global usage of the Renminbi, in conjunction with the ongoing opening up of China's capital markets. HSBC is honoured to have acted as joint lead underwriter on this important transaction."
Establishment of B.C.’s Panda bond program (Dec. 2015): https://news.gov.bc.ca/releases/2015FIN0075-002009
Establishment of Canadian RMB hub (Nov. 2014): https://news.gov.bc.ca/stories/bc-welcomes-establishment-of-canadian-rmb-hub
B.C.’s second offshore RMB bond (Nov. 2014): https://news.gov.bc.ca/stories/successful-second-renminbi-bond-reinforces-bcs-commitment-to-china
B.C.’s first offshore RMB bond (Nov. 2013): https://news.gov.bc.ca/stories/successful-renminbi-bond-signals-new-level-of-china-canada-relations