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China plans record sale of $6b in sovereign USD bonds

Move underscores its aim of building out an offshore market where its companies, local authorities can tap funding

Hong Kong

CHINA is planning a record sale of sovereign bonds in US dollars, with a potential US$6 billion offering, according to people familiar with the discussions.

The Ministry of Finance is considering tenors of three years, five years, 10 years and 20 years, according to the sources.

This marks the third straight year for China to issue dollar debt, and underscores the nation's continued interest in building out an offshore market where its companies and local authorities can tap funding. The 20-year note will fill a gap between 10-year and 30-year securities issued in 2018.

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"It reaffirms China's determination to develop an orderly offshore dollar bond market for Chinese issuers," Anne Zhang, head of fixed income for JPMorgan Private Bank in Asia, said of the offering. "The new deal will further complete a sovereign curve."

China's sale is planned for as soon as Tuesday, the people familiar with the discussions said. It follows the country's first euro bond in 15 years - which saw blowout demand among investors eager to snap up securities with positive coupons amid a swathe of negative-yielding debt.

A US$6 billion issue would be double the size of last year's, and triple the amount sold in 2017, when China resumed issuing sovereign dollar debt for the first time since 2004.

The Chinese dollar bond market now exceeds US$740 billion, according to data compiled by Bloomberg, and is both a key source of funding for domestic borrowers and an outlet for investing Chinese foreign-currency deposits.

Issuance dipped in 2018 after a record 2017, hurt in part by depreciation of the yuan as the US-China trade war erupted. But sales have rebounded this year as US Treasury yields came down. The yuan has also stabilised in recent weeks, following the resumption of Sino-American trade negotiations.

Chinese borrowers have issued US$195 billion of dollar bonds so far this year, a record pace, according to data compiled by Bloomberg. The all-time high for a full year was US$211 billion in 2017.

Investment-grade securities account for about 53 per cent of Chinese dollar bonds, with high-yield notes at 38 per cent. Property developers have racked up record issuance of US$78.5 billion this year.

While China has the world's second-largest bond market, in some ways it remains relatively underdeveloped, according to Becky Liu, head of China macro strategy at Standard Chartered Plc in Hong Kong.

"There is a good number of companies that do not have a funding channel at home," Ms Liu said. That's why even domestic-focused enterprises can tap the dollar-debt market, she said.

The record China sale isn't huge relative to some other sovereign issues. Italy sold US$7 billion of dollar bonds last month. Argentina sold US$9 billion in January 2018.

China holds the fifth-highest investment grade rating at Moody's Investors Service, S&P Global Ratings and Fitch Ratings. China's planned bond issue will be unrated. BLOOMBERG