CBI member, BNP Paribas has become the third locally incorporated foreign bank in China to receive a license to underwrite bond sales by foreign companies in China.
BNP Paribas joins fellow CBI member HSBC, as well as Standard Chartered, in obtaining the necessary regulatory approval – no US bank has yet received such a license.
Colloquially known as ‘Panda Bonds,’ they are Chinese Renminbi-denominated bonds from a non-Chinese issuer, sold within the People’s Republic of China. So far deals in ‘Panda Bonds’ have been somewhat rare, resulting from the fact that China’s regulatory authorities place strict controls on monetary control and flow.
In fact, despite the government agreeing to open up and ‘Panda Bond’ market and granting licenses to foreign banks, it has been agreed that sales raised from the sale of ‘Panda Bonds’ have to remain in China; preventing issuers from repatriating such funds unless through consultations with the World Bank.
Nonetheless, foreign banks consider the granting of licenses as the first ‘baby-step’ towards being granted permission to convert funds for repatriation and improving the range of tools available to foreign entrants within the financial services sector to sell RMB-denominated debt.
The three banks to have been issued licenses have all stated that they expect that the number of ‘Panda Bond’ deals will start to rise and gradually replace what are known as ‘dim sum bods’ – the term used tor notes issued in Hong Kong’s offshore RMB market.
BNP Paribas expects issuance to grow in the coming years. C.G. Lai, deputy chief executive of BNP Paribas China said, “With the growing maturity of multinational corporations’ operations onshore in China, foreign parent companies are increasingly seeking to tap the domestic bond market as an important and highly-cost effective source of RMB funding to support their Chinese expansion needs.”
Lai taps into a wider market access issue facing the financial services sector, that foreign banks face restrictions on their ability to expand ownership and business scope in China because they are prevented from converting funds borrowed from overseas to establish sub-branches in China.
This is the second type of bond which BNP Paribas has managed to obtain a license for. Earlier this year, the French bank also received a license allowing them to underwrite short-term commercial paper and medium-term notes. However, this news only highlighted the fact that China’s financial services sector remains fragmented and poorly regulated.
A second key market access issues facing foreign banks, such as BNP Paribas, is the fact that different regulatory agencies in China regulate different categories of debt.
No single license enables a foreign bank in China to underwrite all types of debt.
BNP Paribas is by no means alone with its ambitions to expand its offerings within the financial services sector, since foreign holdings of Chinese onshore bonds reached RMB 1.75tn by the end of September, up RMB 500bn y/y.
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