China companies flock to raise debt in euros
Date: 2015-03-09 News Sourse: Financial Times
Chinese companies are ditching the renminbi and flocking to the euro to raise new offshore debt, as the imminent launch of quantitative easing in the single currency bloc sends ripples through global markets.
So far this year, mainland-based companies have sold $2.9bn worth of euro-denominated debt, according to Dealogic, compared with nothing in the first quarter of last year and close to the $3.3bn raised in the whole of 2014.
Meanwhile, Chinese borrowers have shunned offshore renminbi debt, known better as "dim sum" bonds. The total raised in the market this year is only $250m, a dramatic drop from the $6.6bn issued during the first three months of last year. US dollar borrowing has been steadily high, with $16.3bn of bonds sold this year.
Funding costs for euro debt have been tumbling since the European Central Bank announced plans for a programme of quantitative easing, which is due to begin today. More than €1.5tn of sovereign eurozone bonds now offer investors negative yields, according to JPMorgan estimates.
The new focus on euro debt also marks a change in Chinese corporate funding habits, in part a reflection of increasing eurozone assets held by some of Asia's most acquisitive companies. Euro bonds can be used for deal financing or for currency management. In the past six months, the euro has dropped 13 per cent against the renminbi, which has a managed peg to the US dollar.
Beijing-based State Grid, which owns stakes in grid operators in Portugal and Italy, borrowed €1bn in January. Another euro bond issuer, Fosun International, already owns financial and healthcare assets in Portugal, duty free shops in Greece, and German fashion brand Tom Tailor. It successfully completed a €939m deal for French holiday resort group Club Méditerranée last month.
Companies from India, South Korea and Hong Kong have also turned to euro debt as they look to lower funding costs and diversify their investor base.