China-US trade war

Trade war hits Chinese offshore issuance: Dealogic

Issuance of US dollar bonds out of China declined after the US threatened more tariffs on Chinese goods. But investors are pinning their hopes on upcoming talks between US president Donald Trump and Chinese president Xi Jinping.
The Sino-US trade war affects Chinese US dollar bonds.
The Sino-US trade war affects Chinese US dollar bonds.

There is hope for the Chinese offshore US dollar bond market, after US president Donald Trump and Chinese president Xi Jinping agreed to meet at the G20 Leaders Summit in Osaka, Japan, at the end of June.

In mid June, Trump tweeted: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.”

The following day, the English version of Chinese state newspaper People’s Daily confirmed the meeting. It quoted Xi saying he is willing to meet with Trump on the sidelines of the summit.

After Trump threatened to hike US tariffs on Chinese goods at the beginning of May, Chinese US dollar bond issuance has slumped from roughly $31 billion in April to $2.5 billion in May to $14.8 billion so far in June, according to Dealogic.  

May still reported a handsome $21.5 billion issuance via 37 deals, making it the second heaviest borrowing month so far this year. June is not looking too shabby either either. Deal flow has rallied to $14.8 billion via 31 deals with almost two weeks to go for this month.

Jumbo deals are still emerging: China Huarong Asset Management priced a multi-tranche $5.7 billion dollar offering and SDIC, a Chinese central state-owned enterprise (SOE), revisited the G3 market and priced a $1.0 billion transaction, Dealogic added. The US dollar bond market also welcomed a $100 million debut issuance from Chinese software-financial technology company VCredit Holdings. That deal is the only Chinese tech sector debut since May.

The renminbi exchange rate to the US dollar reflects the ups and downs of the Sino-US trade war. It surged from Rmb6.74 at the beginning of May to Rmb6.93 on June 17, then decreased again to Rmb6.90 on June 20.  

The trade war has focused on technology (a prime example is Chinese telecommunication technology giant Huawei), and Dealogic notes that the industry is becoming vulnerable. In the next three years, a significant volume of US dollar bonds from the five Chinese tech giants are going to mature. This including Huawei and Tencent with $49 billion via 24 deals. This accounts for 85% of all Chinese tech companies’ maturing bonds totalling $57.5 billion in 60 deals.


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