China's MoF Relaunches Euro Sovereign Bonds After 3 Years, Record Subscription Multiplier
After a three-year hiatus, the Ministry of Finance has once again issued sovereign bonds denominated in euros outside of China's borders.
According to a report on the Ministry of Finance's website on the 26th, on September 25th Paris time, the Ministry of Finance of the People's Republic of China, representing the central government, successfully priced and issued €2 billion worth of sovereign bonds in Paris, France. This included €1.25 billion for a 3-year term with an issuance interest rate of 2.517%, and €750 million for a 7-year term with an issuance interest rate of 2.738%.
The news indicated that international investors were highly enthusiastic in their subscriptions, with a diverse range of investor types and a broad geographical distribution. The total subscription amount reached €16.2 billion, which is 8.1 times the issuance amount. Among them, investors from Asia, Europe, the Middle East, and offshore United States accounted for 51%, 36%, 5%, and 8% respectively. Sovereign and supra-sovereign, banks, insurance, and fund management investors accounted for 26%, 51%, 4%, and 19% respectively. The bonds issued this time are all deposited with the Hong Kong Monetary Authority's Central Moneymarkets Unit (CMU) and will subsequently be listed on the Hong Kong Stock Exchange and the Euronext Paris.
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First Financial Daily noted that this issuance is the second Chinese sovereign bond priced and issued in France since 2019, and also listed simultaneously on the Euronext Paris and the Hong Kong Stock Exchange. It is also the first time since 2021 that the Ministry of Finance has issued sovereign bonds denominated in foreign currencies outside of China.
Issuance of Euro Sovereign Bonds Since 2019
"The subscription multiple of this issuance has set a new record, fully reflecting the confidence of international investors in China's sovereign credit," said Zhao Tingchen, a senior researcher at the Bank of China Research Institute. The last time China issued euro-denominated sovereign bonds was in 2021, which received enthusiastic subscriptions from international investors, reaching 4.3 times the issuance volume. In August of this year, the International Monetary Fund (IMF) significantly raised its economic growth forecast for China in 2024 and 2025, showing that the international community is optimistic about China's economic growth. International investors' enthusiasm for this issuance of euro-denominated sovereign bonds is even higher, with a total subscription amount of €16.2 billion, reaching 8.1 times the issuance amount. Among them, the subscription for the 3-year bonds reached 6.48 times, and the 7-year bonds reached 10 times, reflecting the international market's firm confidence in China's sovereign debt and long-term economic prospects.
This issuance coincides with the beginning of the euro's easing cycle. Huang Jian, head of Global Corporate Banking for Greater China at J.P. Morgan, told First Financial Daily that against the backdrop of the European Central Bank starting a rate-cutting cycle, this bond issuance by the Ministry of Finance is seen as an important step for China to further integrate into the international financial market, which helps to enhance China's influence and say in the international financial market.
"Against the current backdrop of relatively weak global economic recovery and easing inflationary pressures, this move by the Ministry of Finance not only provides international investors with an attractive investment opportunity to participate in China's economic development but also demonstrates the Chinese government's determination to further open up the financial market and deepen interconnection with the international financial market. This action will also help to further improve the yield curve of euro sovereign bonds, providing a pricing benchmark for future Chinese issuers to issue euro bonds abroad. In addition, this move is expected to further strengthen exchanges and cooperation between China and Europe in financial markets, investment, risk management, and other aspects," Huang Jian said.
CICC also said in a report that the issuance of this euro sovereign bond has an important impact on enhancing international investors' understanding and confidence in China, establishing a regular pricing benchmark for the market, promoting the opening up of the financial industry, and providing high-quality assets for domestic and foreign investors.
The report stated that China's economic development is currently at a critical juncture of transitioning from old to new drivers, and in the long term, the trend of China's economy remains stable and positive. At the same time, as major overseas economies show signs of marginal economic slowdown, the European Central Bank has also started a rate-cutting cycle this year, leading to a decline in euro bond yields from high levels. Against this backdrop, the Ministry of Finance's issuance of €2 billion worth of sovereign bonds is also an opportunity to showcase the stability of China's economic fundamentals and long-term growth potential to international investors on the basis of reasonable control of financing costs. Choosing to price and list in France on the occasion of the 60th anniversary of the establishment of diplomatic relations between China and France is also of great significance for the financial market cooperation and interconnection between China, France, and Europe.In terms of issuance pricing, CICC believes that, compared horizontally, the pricing of this issuance of euro-denominated sovereign bonds in our country is more attractive than the yield rates of French and German debt. Given the overall soundness of our country's fiscal situation, the relatively low debt burden of the central government, and the overall controllable debt risk, the safety of our country's euro-denominated sovereign bonds is high, and the relative advantage of the coupon rate is quite attractive to international investors. Looking at it vertically, the spread of this issuance is wider than that of the same maturity issued in previous years, however, compared to the initial pricing guidance, the narrowing is more significant than in previous years, which also reflects international investors' recognition of this euro-denominated sovereign bond and our country's sovereign credit level.
According to data from the State Administration of Foreign Exchange, as of the end of March this year, in the balance of our country's total external debt (including domestic and foreign currencies), the balance of foreign currency external debt (including SDR allocation) is about 9.27 trillion yuan (equivalent to about 1.31 trillion US dollars), accounting for 52%. In the first quarter of 2024, the balance of foreign currency registered external debt, the proportion of US dollar debt is 83%, euro debt is 7%, Hong Kong dollar debt is 4%, yen debt is 4%, and the combined proportion of special drawing rights and other foreign currency external debts is 2%. Some analyses believe that the issuance of euro bonds will also help to expand China's international financing channels and optimize the structure of external debt.