Moody’s: 2016 renminbi bond issues to be largely onshore

Renminbi (RMB) bond issuance will be skewed this year towards the onshore market as Chinese issuers refinance their debt in onshore market amid a relaxed credit environment, predicts Moody’s Investors Service.

The credit ratings agency (CRA) says that recent stimulus measures from the Chinese government, reflected in RMB2.5 trillion of new loans in January 2016, suggest that growth and stability are the policy priorities for the year ahead.

“As the Chinese government continues to reform and liberalise the onshore bond market, together with the low interest rate environment, issuance by corporates, financial institutions and regional and local governments is expected to maintain its growth momentum,” says Ivan Chung, a Moody’s associate managing director and head of Greater China credit research and analysis.

Chung was speaking on the release of Moody’s just-published ‘Renminbi Bonds Monitor’, a quarterly report that provides an update on China’s onshore and offshore RMB bond markets, and the CRA’s views on market trends on the mainland.

New RMB loans in January saw the highest monthly total since 2012. Even taking into account seasonality, which typically sees new loans peak in January in China, the growth this year is more than RMB1 trillion above the new loan amounts reported in January for 2012 to 2015.

The report adds that liquidity and investor appetite in the offshore market are more uncertain this year given RMB’s weakness against the US dollar (USD). Thus, growth of the offshore RMB bond market will remain dampened in 2016 and foreign issuers are likely to dominate.

The report also looks at how financially weak issuers in China’s overcapacity sectors – such as steel, coal mining, shipbuilding and cement – are still vulnerable despite the relaxed credit environment. With more than 3,000 issuers of varying credit quality, Moody’s expects further default cases in the onshore bond market.

“The restructuring of overcapacity sectors will prompt more credit events such as asset disposals and mergers and acquisitions (M&A), which could have a material impact on issuers’ credit profiles,” says Chung.


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