On March 10, China Development Bank (CDB) released the notice of additional issuance of the 1st and 2nd phrases of financial bonds on the Shanghai Stock Exchange (SSE) on the SSE website. The two phrases of bonds will be bid for additional issuance on the SSE on March 13. The additionally-issued targets are CDB 1301 (2-year period with fixed interest) and CDB 1302 (5-year period with fixed interest) issued at the end of last year. The bidding volume of CDB 1301 is RMB6 billion with the residual maturity of 1.83 years and the coupon rate of 5.80%; and that of CDB 1302 is RMB2 billion with the residual maturity of 4.84 years and the coupon rate of 5.84%. The underwriting group of the issuance this time is the same as that of the first issuance, and the lead underwriters are Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, CITIC Securities, Orient Securities, and Donghai Securities. The issuance and listing of CDB bonds on the SSE is an important measure of the People’s Bank of China and the China Securities Regulatory Commission to facilitate the reform and promote the development and interflow of the bond markets, and it is of positive influence on promoting the bond market’s innovation and attracting more overseas and individual investors to participate in the bond market.
CDB 1301 and CDB 1302 were bid for issuance on the SSE on December 27, 2013, and they were listed on January 7, 2014. The two phases of CDB bonds, which have been actively subscribed for by all parties, have presented brisk trading since their listing. According to statistics, the net closing price of CDB 1301 on March 6 was RMB101.45, up by 1.49% compared with that on the first day of its listing, and its YTM (yield to maturity) was 4.91%; and the net closing price of CDB 1302 was RMB102.93, up by 2.94% compared with that on the first day of its listing, and its YTM was 5.19%. The two phases of bonds have achieved the accumulative trading volume of RMB2.02 billion, accounting for nearly 17% of the trusteeship volume. All this shows that CDB bonds have gained popularity among investors of all kinds on the SSE. Particularly, they have been actively purchased by QFIIs, RQFIIs, and individual investors. Someone revealed that QFIIs and RQFIIs have held 9% of CDB bonds on the SSE, and many individual investors have invested in CDB bonds.
Market insiders analyzed that as CDB will continue to issue CDB bonds on the SSE, market participants’ enthusiasm is expected to become higher for the following reasons. First, the additional issuance of CDB bonds will help to further increase the liquidity, thus enhancing the bond’s trading function. Second, as the 1st batch of CDB bonds was issued at the end of last year, a lot of institutions had closed positions, and many decision makers of QFIIs and RQFIIs were on the Christmas vocation, they had no time to subscribe for the bonds. The demands frozen at the end of last year are expected to be released this time. Third, judging from the seminars jointly held by the SSE and CDB recently, under the background of the continuous appreciation of RMB and the obviously higher domestic interest rate compared with those in overseas developed economies, QFIIs and RQFIIs still have great enthusiasm for investment in high-class interest-rate bonds represented by CDB bonds. Fourth, as the risk factors of credit bonds have been gradually released recently, the market prefers to avoid credit risks and invest in sovereign debts and quasi-sovereign ones. However, for investors with low tax burdens, such as funds and banking wealth management products, actual coupon income of CDB bonds is more attractive than treasury bonds.
Besides, a market insider believed that in the issuance of CDB bonds this time, more individual investors might be involved. In the issuance of the 1st batch of CDB bonds, the largest order of an individual investor has the subscription volume of RMB20 million, and the proportion of individual investors has grown steadily since the listing of the bonds. Though CDB mainly specializes in mid-term and long-term wholesale business, and it has little contact with the masses, its popularity in the bond market has attracted many individuals who have participated in bond investment for a long time. One individual investor very familiar with CDB said that the coupon rate of the 2-year bonds issued by CDB on the SSE at the end of last year was 5.8%, while the interest rate of 3-year certificate treasury bonds was 5%, and the treasury bonds could not be bought even when one comes to a bank earlier in the morning. As a result, many individuals have chosen to invest in CDB bonds. Though the yield rate in the bond market has decreased recently on the whole, the yield rate of 2-year CDB bonds in the secondary market has remained at 4.9%, with liquidity and trading opportunities. Therefore, the value of 2-year CDB bonds is not lower than treasury bonds.
An official of the SSE said that the SSE has been well prepared for the additional issuance according to the issuance need of CDB. Besides, under the guidance of competent departments, the SSE has gradually improved the issuance and trading mechanism of policy-related financial bonds, researched the policy-related financial bonds that conform to the characteristics of the exchange markets, and made full preparations for the regular issuance of CDB bonds on the SSE, with an aim to further promote the sound development of China’s bond market.