The New Development Bank (NDB) is continuing to diversify its funding instruments and used Panda bonds as a financial instrument, according to Zhongxia Jin, the director general, Treasury & Portfolio Management Division of the New Development Bank (NDB).
Speaking at the 9th annual meeting of the NDB, he said on Saturday that the NDB aimed to ensure that sufficient resources were available to meet its funding and liquidity requirements, while minimising borrowing costs.
As of July 2024, NDB’s total outstanding borrowing was around $16 billion (R285bn) in which the US dollar, Chinese yuan (also known at the renminbi) and the rand accounted for more than 96%. The US dollar alone accounted for more than 61% of the borrowing.
Jin said the bank had been working on establishing bond programs in other member countries such as India and Brazil.
“China’s bond market has been important for NDB local currency financing operation, mainly due to three factors. The first, is the level of market development and the second is the convertibility of the currency. The third is the availability of investable asset in this local market,” he added.
China’s vibrant bond market had become the second largest in the world in depth, efficiency and accessibility, as well as resilience.
According to the Bank for International Settlements, as of end 2023, the bonds outstanding in China was around $22 trillion, lower than that of US, but more than twice of that of Japan, and larger than the combined outstanding of Europe.
“In addition to its depth and scale, it was an increasingly open market,” he said.
It was included into major global bond indices such as the Bloomberg Global Aggregate Index, JPMorgan GBI-EM Index and the FTSE World Government Bond Index.
For international investors, there were various mechanisms, such as qualified foreign institutional investors and the bond connect arrangement to facilitate their investment in the market.
The effort of member countries to develop and open up their bond markets could greatly help the NDB’s efforts in its local currency financing operation, Jin said.
In the case of China, the market development was significantly bolstered by the convertibility of the currency and the convenience of managing the renminbi liquidity.
The renminbi had officially been recognised by International Monetary Fund (IMF) to be a freely usable currency since 2015 and included officially in the Special Drawing Right (SDR) basket of IMF since 2016.
The SDR is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
He said there were two major criteria of the IMF in doing this:
First, the currency was widely used by the market to make payments for international transactions. Second, the currency was widely traded in the principal exchange market.
Since then, the holding of renminbi had been recognised as part of the foreign exchange reserve of central banks. In 2022 renminbi’s weight in SDR basket had further increased from 10.9% to 12.3%.
Jin said part of IMF review criteria and the conditionality was that the central bank of China should ensure the compatibility of renminbi held by foreign central banks and the international financial institutions, including the NDB.
Jin spoke about China’s Panda bonds, which are onshore renminbi-denominated debt issued in China by overseas companies.
The first Panda bond was issued in 2005 almost 20 years ago. At the end of 2023, more than 350 Panda bonds were issued by 89 issuers from 20 countries and regions with a total amount of $86bn equivalent.
Jin said the NDB had become the largest Panda bond issuer, with total issuance of $8bn equivalent and total outstanding of $6bn equivalent.
On July 24, 2024, NDB had issued an RMB 8 billion, three-year Panda bond (which is $1.1bn equivalent) priced at 2.03% in China’s Interbank Bond market. This transaction marked NDB’s second Panda bond issuance in 2024, following the largest-ever five-year Panda bond issued in January.
He said the bond insurance attracted significant interest from investors, with more than 30 offshore and foreign investors participating. The overall subscription of the bond reached 1.7 times, highlighting robust demand and high investor confidence.
“The NDB will continue to improve this access to capital market, and enhance the mix of currencies by exploring opportunities in local currency and financing,” Jin said.
BUSINESS REPORT