HONG KONG • Two Chinese policy banks are racing to issue bonds through a new trading link with Hong Kong even though bankers say the framework is not fully ready.
Agricultural Development Bank of China (ADBC) and China Development Bank (CDB), both rated A1/AA- by Moody's and S&P, will sell renminbi notes of a combined 36 billion yuan (S$7.5 billion) to onshore and offshore investors under the new "Bond Connect" scheme.
The two offerings started yesterday, although the CDB deal will run for two days, and are intended to coincide with the 20th anniversary of Britain's handover of Hong Kong to China on July 1.
Bankers and investors, however, are still not clear how the offshore element of the deals will work, given that the landmark Bond Connect trading link is not yet up and running. "We still have lots of questions on the operation and lots of logistics need to be cleared," said one banker involved in the two deals.
Bond Connect promises to give offshore investors direct access to China's interbank bond market without the need to open custody and bank accounts on the mainland.
Hong Kong and Chinese regulators did not set an official start date when they approved the link in May, but market participants have been working towards a launch on July 3, the first working day after the anniversary celebrations.
Guidelines for the initiative arrived in early June, giving traders just a month to prepare. Late last week, underwriters were still trying to figure out their roles and investors were scrambling to check their eligibility under the scheme.
One offshore investor, who had been asked to support the two pilot deals, told the International Financial Review the application had been unexpectedly rejected last week because the institution had already opened an onshore account.
ICBC (Asia) is one of eight cross- border coordinators on the ADBC deal and one of 10 on the CDB deal.
In the first phase, Bond Connect will allow foreign and Hong Kong investors to buy onshore bonds in the primary or secondary markets, under the so-called north-bound trading link. Only new issues sold with a prospectus in Chinese and English will be available to these investors.
In addition to the two policy banks, state-owned enterprises China Three Gorges and Aluminium Corporation of China are also among the first batch of issuers. One or two Panda bond offerings may also be included, sources have said.