The Rise of Panda Bonds: Enhancing International Investments in China's Bond Market from an Offshore Perspective
Panda bonds, initially launched in 2005, saw unprecedented popularity in recent years. This surge is likely driven by factors such as the divergence in the United States (“U.S.”) – China monetary policy and ongoing geopolitical tensions. Panda bonds – renminbi (“RMB”) denominated bonds issued within China’s domestic bond market by entities domiciled outside of China – serve as a strategic financing tool. Issuers range from Chinese-owned companies incorporated in offshore financial centers with primary operations in China to international corporations, financial institutions and sovereign entities.
The panda bond market offers significant appeal for international issuers seeking to finance their operations in China. Many international corporations have established strong economic connections with China, which serves as a crucial consumer market, operational hub and manufacturing center. By raising RMB directly within China, these companies can enhance their cash flow management and mitigate potential currency risks associated with their funding requirements.
Moreover, the increasing accessibility of the Chinese market has strengthened economic and financial relationships between the Chinese and the international markets. When international institutions issue panda bonds, Chinese market participants can gain insights into their operations, which fosters trust between the two parties and ultimately supports the efficient and sustainable functioning of these institutions in China. Additionally, the issuance of panda bonds by international government entities plays a vital role in deepening bilateral financial cooperation and enhancing trade relations.
Since 2022, China’s 10-year government bond yield has consistently been lower than that of the U.S., with the interest rate gap steadily widening. This environment presents a strategic opportunity for entities seeking RMB financing — issuing panda bonds allows them to capitalize on China’s low interest rates, lower borrowing costs and ease debt burdens. Additionally, tapping into China’s domestic investor base offers diversification, while policy support has further facilitated fundraising efforts.
Offshore companies have played an increasingly vital role in the rapid expansion of the panda bond market. Many issuers are incorporated in offshore jurisdictions such as the Cayman Islands, Bermuda, and the British Virgin Islands, making offshore legal counsels essential in navigating the issuance process. Their expertise covers due diligence, reviewing key documents (including the offering circular, the application letter and the underwriting agreement), issuing legal opinions and preparing internal approval materials for submission to the People’s Bank of China or registration with the National Association of Financial Market Institutional Investors (“NAFMII”).
Appleby has recently acted as the offshore legal counsel for several issuances of panda bonds, including (i) as Bermuda counsel to China Everbright Water Limited (dual-listed on The Stock Exchange of Hong Kong Limited (“Hong Kong Stock Exchange”) and Singapore Exchange Limited) in connection with its registration of debt financing instruments in the NAFMII with a total registered issue size of up to RMB 8 billion (“Debt Financing Instruments”), and its issuance of the first tranche of medium-term notes in the principal amount of RMB 1.5 billion under the Debt Financing Instruments; (ii) as Cayman Islands counsel to China Resources Building Materials Technology Holdings Limited (listed on the Hong Kong Stock Exchange) on its registration in the NAFMII of medium-term notes with a total registered issue size of up to RMB 15 billion, and its issuance of the first tranche of their medium-term notes for a 3-year term in the principal amount of RMB 1 billion; and (iii) as Cayman Islands counsel to Xinyi Solar Holdings Limited (listed on the Hong Kong Stock Exchange) on its registration with the NAFMII of a proposed issuance of debt financing instruments in the aggregate principal amount of not more than RMB 3 billion, to be traded on the China Interbank Bond Market.
We expect panda bonds to continue serving as a key fundraising tool for international issuers, enabling stakeholders to pursue their strategic objectives with heightened efficiency and effectiveness.
