After the pilot issuance of the 1st batch of China Development Bank (CDB) bonds on the Shanghai Stock Exchange (SSE), the 2nd batch of CDB bonds was issued on the SSE recently, and listed and traded on March 20. Investors, especially QFIIs, actively subscribed for CDB bonds, which fully showed the advantages of the SSE bond market. CDB’s pilot issuance of bonds on the SSE witnessed a good result.
On March 13, the 2nd batch of CDB bonds was bid for additional issuance through the SSE bond issuance system. The additionally-issued targets are 2-year bonds with fixed interest (bond code: 018001) and 5-year bonds with fixed interest (bond code: 018002) issued at the end of last year. Additional issuance amount of the 2-year bonds is RMB6 billion, with the residual maturity of 1.83 years, the coupon rate of 5.80%, and the post-additional-issuance balance being RMB14 billion; and that of the 5-year bonds is RMB2 billion, with the residual maturity of 4.84 years, the coupon rate of 5.84%, and the post-additional-issuance balance being RMB6 billion. Thus, CDB Bonds of RMB20 billion in total have been issued on the SSE.
According to the bidding result, yield rate of the 2-year bonds was 4.97% while that of the 5-year bonds was 5.28%, 8 and 2 BPs lower than those of the CDB bonds with similar periods in the inter-bank bond market, respectively; their have high subscription multiples, 2.01 times and 2.76 times, respectively. It is learnt that subscribers of the 2nd batch of CDB bonds were securities companies, QFIIs and RQFIIs. The bidding result showed that listed commercial banks and securities companies subscribed for RMB2.3 billion bonds and RMB5.8 billion bonds, with the subscription proportions of 29% and 69%, respectively. In the distribution after the bonds issuance, securities companies distributed RMB2.33 billion bonds in total to 18 QFIIs or RQFIIs such as Deutsche Bank, BNP Paribas, and the Banco de España, with the subscription proportion up to 30%, 15 times their subscription proportion for the issuance of the 1st batch of CDB bonds. On March 20, the 2nd batch of CDB bonds was listed and traded on the SSE. On that day, the trading volume dramatically increased compared with that of the 1st batch of CDB bonds, which showed that the additional issuance mechanism adopted by the 2nd batch of CDB bonds effectively enhanced liquidity of the secondary market, and CDB bonds gained popularity among investors including foreign capital institutions and individuals on the secondary market.
Market insiders said that investors on the SSE market, especially QFIIs and RQFIIs, actively subscribed for CDB bonds for the following reasons. First, the SSE and CDB successively held an array of promotion campaigns since last October, and they organized trainings for QFIIs and RQFIIs in February 2014; under great supports of competent authorities and market participants, investment value of CDB bonds (i.e., quasi-sovereign bonds) has been further recognized by the market. Second, as 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. For investors with low tax burdens, such as funds and banking wealth management products, CDB bond is a very attractive investment target. Third, as the 1st batch of CDB bonds was issued at the end of last year and some institutions, especially QFIIs and RQFIIs, encountered the Christmas vocation, they had no time to subscribe for the bonds. After the Chinese Spring Festival, the market interest rate continuously fell and the capital was abundant relatively, which propelled market institutions to subscribe for CDB bonds.
The issuance of the two batches of CDB bonds testifies that CDB’s pilot issuance of bonds on the SSE has achieved a good result preliminarily. The concerted promotion of the pilot issuance by the People’s Bank of China and the China Securities Regulatory Commission was a substantive measure and a beneficial try for boosting the interflow of China’s bond markets, with expected achievements made as well. Exchange-based bond market has some advantages such as its diversified investors and market-oriented pricing mechanism, so it can interact with the inter-bank bond market, develop more bond investors, and build more financing channels for issuers. It is hoped that with the overall arrangement and guidance of competent authorities, CDB and the SSE will continue to do researches on issuing bond products oriented to the features of the exchange market, improve mechanisms for issuance and trading of policy-related financial bonds, and facilitate regular issuance of policy-related financial bonds on the exchange market, in a bid to fuel the rapid growth of China’s bond markets.
