Chinese Companies Set to Launch Up to $15 Billion in Overseas Bonds This Quarter Amid Boosting Stimulus

In an exciting turn of events, Chinese investment-grade companies are preparing to tap into the offshore bond market with plans to issue between $10 billion and $15 billion this quarter. This surge comes as Beijing's recent economic stimulus efforts have significantly eased fundraising expenses and invigorated demand among borrowers, according to financial experts.

This quarter’s anticipated fundraising marks a three-year high for Chinese offshore debt issuance. Just last week alone, these companies secured approximately $5.9 billion in US dollar and euro bonds, making it the most active week for such fundraising ventures in 2024, as reported by Dealogic.

Xixi Sun, head of Citigroup's Greater China bond syndicate, explained, "The positive momentum from the government’s stimulus measures, along with expected interest rate cuts from the Federal Reserve, could encourage agile issuers to rush into the market more swiftly. We may see further activity in the upcoming weeks."

Over the past two weeks, the Chinese government has unveiled a massive stimulus initiative, which features lower lending and mortgage rates aimed at revitalizing the beleaguered property sector. Moreover, Beijing intends to issue around 2 trillion yuan (approximately $285 billion) in sovereign bonds this year to enhance household consumption, according to sources familiar with the plans.

According to Fitch Ratings, the pace at which China is loosening its credit conditions has exceeded prior expectations. The Federal Reserve reduced interest rates by 50 basis points last month, steering the US economy toward a lower interest rate environment. As a result, credit spreads for Chinese investment-grade firms have tightened by 10 to 20 basis points since the introduction of the stimulus, reflecting a growing investor appetite for risk in China.

This declining interest rate landscape and the narrowing of credit spreads promise reduced funding costs for Chinese corporations. Notably, Meituan, the country's leading delivery platform, recently raised $2.5 billion with a two-part dollar bond, which was a significant first for the technology sector in 2024. Strong demand allowed for pricing that was as much as 30 basis points lower than originally forecasted.

As the Chinese economy rebounds due to these stimulus measures, experts anticipate a wave of corporate expansion, leading to increased funding requirements and heightened financing activities through bonds and other means, according to Mandy Zhu, UBS Vice Chairman of Global Banking for Asia. Zhu noted, "We are witnessing strong bond market momentum coupled with robust demand from investors in both primary and secondary markets."

The potential $15 billion in overseas bond issuances planned by Chinese companies this quarter is notably higher than the $13.8 billion raised during the same timeframe last year and the $11 billion from the fourth quarter of the previous year, revealing a strong upward trend.

Looking ahead, this rush for overseas debt issuance may persist into 2025 as Chinese corporations continue to navigate regulatory approvals and quotas, as highlighted by Citigroup's Sun. In the first three quarters of 2024 alone, Chinese companies raised a remarkable $63.33 billion in dollar, euro, and yen bonds, showcasing a significant increase from the $44.1 billion raised during the same period last year. However, despite this growth, it's important to note that current offshore debt issuance is still more than 50% lower than the peak of $150.1 billion witnessed in the first three quarters of 2020 due to a global surge in pandemic-related stimulus measures.

Keep an eye on this evolving narrative, as the implications for both the Chinese economy and global markets are substantial!