HONG KONG: The Republic of Korea has priced a 3 billion renminbi ($465 million) three-year debut Panda bond at 3.0 percent, hitting the low end of the price range of 3.0-3.5 percent.
South Korea is the first foreign country to raise funds in China's domestic market following Premier Li Keqiang's visit to the country in late October, when a series of financial cooperation initiatives were announced including developing a local renminbi bond market in South Korea.
Bankers said that the first sovereign Panda bond looked to Chinese policy banks for pricing references, as South Korea's notes don't enjoy a tax break on interest income that applies to Chinese government bonds.
The yield on China Development Bank's three-year paper was 3.01 percent yesterday, while Chinese treasury notes with the same tenor yielded at 2.73 percent.
"Investors kind of wanted to get their hands on the nascent Panda bonds to see how it goes, as it appears that Panda bonds may become regular offerings in the market," said a Shanghai-based trader who placed an order for the Panda bonds.
Analysts are anticipating more offshore issuers to tap the onshore bond market in the coming year, attracted by lower funding cost.
"As China's domestic funding costs are favorable, Korean financial institutions are expected to follow suit to issue Panda bonds, so are financial institutions from other countries and regions," said Yang Xi, a fixed-income analyst with CITIC Securities in a research note.
South Korea's offering also marked the biggest Panda bond offering this year. Three offshore commercial banks, HSBC, Bank of China (Hong Kong) and Standard Chartered Bank, each printed 1 billion renminbi three-year paper with identical yields of 3.5 percent.
China Merchants Holdings (Hong Kong) sold 500 million renminbi of one-year commercial paper in October with a coupon of 3.03 percent, the first public offering of Panda bonds by a non-financial issuer.
The People's Bank of China gave South Korea the green light for its first issue in China's interbank market last week.
The proceeds will go towards investments in the onshore Chinese capital market as part of Korea's foreign exchange reserves and may be repatriated, when necessary, to provide liquidity to the renminbi market in South Korea. China Chengxin International has assigned ratings of AAA to the bonds.
Bank of Communications, the renminbi clearing bank in Seoul, is sole bookrunner. Citibank (China), Goldman Sachs Gao Hua Securities, HSBC (China), Standard Chartered Bank (China) are also on the deal as co-lead managers.
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