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The China offshore USD bond new issuance dropped 39.2% in 2023 to USD62.3 billion due to interest rate hikes, tighter regulations, and lower investor confidence, while the China offshore RMB bond new issuance hit a record high of USD40.8 billion.


Publisher: Lianhe Ratings Global

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Summary

The China offshore USD bond new issuance met a plummet in 2023, with the issuance amount falling to USD62.3 billion from USD102.5 billion in 2022, representing a year-on-year decrease of 39.2%. This was mainly due to the interest rate hikes, more tightened regulation on mid- and long-term offshore bond issuance, and lower investor confidence due to sustained credit events in the offshore bond market. On the contrary, the China offshore RMB bond new issuance achieved considerable growth in 2023, and the issuance amount hit a record high of USD40.8 billion. 

The new issuance of China local investment and development company (“LIDC”) offshore USD bonds declined to USD11.6 billion in 2023, downed by 67.9% compared to that of 2022. The new and more restrictive regulations on corporate’s mid- and long-term offshore bond issuance released by the National Development and Reform Commission (“NDRC”), central government’s insistence on curbing local governments’ implicit debts and the rising offshore financing cost led to a slump of the LIDC offshore USD bonds issuance. 

Unlike the LIDC, the new issuance of offshore USD bonds by Chinese property developers increased to USD17.9 billion in 2023, up by 16.4% from that in 2022 (USD15.4 billion), as many property developers successfully exchanged their bonds for longer maturities and some debt restructuring plans of defaulted property developers with a large amount of debts went into effect. The market sentiment on the real estate industry remained weak, as some top private enterprises defaulted and the contracted sales remained stagnant. 

Both the Free Trade Zone (“FTZ”) bonds and dim sum bonds issuance amount rose sharply in 2023, as the tightened financing conditions and policies constrained most of the LIDCs, especially those with weaker credit profiles, to raise funds in the offshore USD bond market. As an alternative financing channel for some LIDCs, the issuance amount of FTZ bonds surged to USD12.3 billion in 2023, more than doubled compared with 2022 (USD5.1 billion). The issuance amount of dim sum bonds also surged to USD28.5 billion in 2023 from USD9.1 billion in 2022, following the tightened requirements on the FTZ bond issuance were introduced in mid-2023.

We anticipate the new issuance of China offshore USD bond market will bounce back in 2024, as the approaching rate cut by the Federal Reserve (“Fed”) may ease the financing conditions of offshore USD bond issuance. With around USD140 billion of offshore USD bonds maturing in 2024, the strong refinancing needs will also play an important role in boosting the new issuance. Moreover, the Chinese government is expected to introduce more supportive policies for the recovery of the real estate industry and debt settlement of the LIDCs. These may help to revive the market confidence, which can also be conducive to the new offshore USD bond issuance. 

Publisher

Lianhe Ratings Global

Lianhe Global is the largest Chinese international credit rating agency regulated by the HKSFC, with speciality in the Chinese offshore bond market, providing indigenous perspectives different from the Big 3 international rating agencies.

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