Middle East Mega Bonds Eyed by Chinese Banks With Global Dreams

Making use of the old Silk Road marketing new goods – debut bonds from Saudi Arabia to Kazakhstan, is the road that Bank of China Ltd. is heading down.

Three mandates to co-manage emerging-market Eurobonds, including the Saudi government’s international sale is said to have been landed by the state-controlled lender in what is its biggest-ever foray outside Asia. The kingdom is planning to garner at least $10 billion to fill holes in its budget, sources said, and China’s fourth-largest lender is one of nine underwriters hired by the kingdom.

Asian investors are having organizers from their region on bond syndicates makes this easier and are hunting for higher returns in emerging economies as they are desperate to escape negative yields in Japan and Europe.

While the U.S. and European competitors dominate the developing world’s $350 billion hard-currency bond market, this new road has put bankers from Beijing and Tokyo in pole position to grab more business from competitors.

“We are likely to see China’s banks challenge Wall Street banks and Japanese banks directly in all their lines of business, including book running. Volumes are not huge, but I think it is going to become far bigger than it is today,” said Jan Dehn, head of research in London at Ashmore Group Plc, which manages $51 billion of emerging-market assets.

Moving from the 145th rank for worldwide sales in 2009 to 46th place this year,Bank of China has been making its way up the underwriter league table over the past seven years. The bank has been able to get involved with bond sales by companies in the U.K. and Europe including Sky Plc and British American Tobacco Plc by opening up an office in London.

Yet until now the lender has managed to get named to only two dollar deals from 2013 to 2015 and hence hasn’t been as active in emerging-market mandates outside of Asia. But now the tide is starting to turn. Teva Pharmaceutical Industries Ltd. of Israel, a Kazakh oil producer and a Bulgarian energy company have been helped by the Chinese bank to sell bonds in July alone.

Sebastian Ha, head of debt syndicate in Hong Kong at Bank of China, which operated in 41 countries and regions outside China said that it’s all part of an expansion strategy to give borrowers access to Bank of China’s network in a country of 1.3 billion people.

“We are looking into some deals we have not touched before,” he said.

Surpassing Japanese counterparts like Mitsubishi UFJ Financial Group Inc., which collectively had 1.3 percent market share, Bank of China was helped to lead manage 2.2 percent of sales by companies and governments in developing nations last year by doing more hard-currency bond underwriting.

According to data compiled by Bloomberg, five banks which together command 42 percent of the $350 billion of bonds sold in 2015 were still concentrated among five banks – HSBC Holdings Plc, Citigroup Inc., JPMorgan Chase & Co., Deutsche Bank AG and Bank of America Corp.

According to Sergey Dergachev, who helps oversee $13 billion in emerging-market debt as a senior money manager at Union Investment Privatfonds GmbH in Frankfurt, bankers in Asia may face hurdles securing greater clout in the bond business since capital markets are less developed in the region’s countries outside of Japan than they are in the U.S. and Europe. Institute of International Finance data show that compared with $2.9 trillion for the U.S. and $2 trillion for Germany, China had only $109 billion invested in debt securities abroad in the second quarter of 2015.

(Adpated from Bloomberg.com)

Categories: Economy & Finance

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