Chinese companies avoid EU debt; Brexit likely to exacerbate trend
Chinese corporate bonds issued in European currencies lag far behind their dollar counterparts, a trend expected to continue as the U.K.’s exit from the European Union threatens to shake financial markets on the continent.
During the first quarter, Chinese companies issued five internationally marketed euro-bonds worth $3.8 billion, giving the common European currency a 7%-market share, according to Dealogic.
Around 90% of all Chinese overseas bonds during the first quarter were issued in U.S. dollars, the data show.
Issuance in U.K. pounds was even more limited, with a single bond launch worth $322 million. The pound currently only represents 1% of Chinese internationally marketed bonds. There were no issuances in Swiss francs or other European currencies during the first quarter.
Raising capital overseas is one of the solutions that Chinese companies have come up with amid increased regulatory scrutiny on capital transfers out of China. The Chinese government at the end of 2016 introduced tighter rules on capital outflows, targeting both transactions by subsidiaries of foreign companies as well as those by Chinese firms attempting to acquire overseas M&A targets.
There are more advantages to greenback debt. “Issuing a U.S. dollar-denominated bond lets the issuer tap a larger investor base, making these bonds more attractive than euro-denominated bonds,” said Chunshek Chan, head of M&A-research at Dealogic.
