China’s Hongshi Issues First Belt Road Bond in Shanghai for Laos Project

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A small, but significant, 300 million yuan (US$47 million) three year corporate bond has been issued on the Shanghai Stock Exchange (SSE), becoming the first official bond related to China’s massive Belt and Road infrastructure initiative.

It was introduced by privately owned cement maker, Hongshi Holding Group. Proceeds are allocated for the purchase of equipment for a cement plant in Laos with an expected daily capacity of 5,000 tons. According to an SSE press release, Hongshi priced the three year notes at par to yield 6.34 percent. The offering was 2.67 times oversubscribed.

Market traders have told us that the official label suggests that China’s regulators are seeking more control over the use of the term. “It is just a new label under the CSRC (China Securities Regulatory Commission). It does not seem to bring pricing benefit for issuers and it doesn’t guarantee that the proceeds can be used offshore”. In the past few years, there have been multiple self-labeled BRI (Belt and Road Initiative) and Silk Road bonds from Chinese banks and corporate issuers, both offshore and onshore.

Despite the marketing initiative, and the fact that capital was raised for an overseas project, such bonds are unlikely to become mainstream unless restrictions on cross-border capital flows are relaxed. Instead, the money will more likely be used to purchase equipment in China that will then be transported to Laos, the small landlocked nation that borders China’s south-west Yunnan Province.

“The Chinese are always looking for excuses to get money out of China”, says Chris Devonshire-Ellis of Dezan Shira & Associates.”But bonds like these aren’t a mechanism to directly accomplish this. Nonetheless, the bond is significant because it raised money in China for a project in Laos and was oversubscribed. It would be interesting to know who purchased the bonds and what percentage – if any – was taken up by the Chinese public”.


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