The challenge
CEHL wanted to raise finance to support domestic project construction and to supplement working capital. The company decided to issue bonds but there were some key challenges to overcome if it was to achieve its objectives as follows:
- Stringent regulation for opening basic RMB offshore accounts as well as RMB offshore fund raising special accounts are necessary to issue panda bonds. However, strict regulation exists to achieve local PBoC’s approval which raises difficulty opening RMB offshore accounts, given few successful cases could be found in China. “It was critical for the group to collaborate with professional institutions and reach out proactively with the PBoC,” says Christine Wong, Company Secretary.
- Difficulties in communication with multiple regulators; compared with domestic bonds, restrictions and regulations on panda bonds are more intense to protect the interest of domestic investors. Promoting effective communications with regulators such as State Administration of Foreign Exchange (SAFE), Shanghai Stock Exchange (SSE), and China Securities Regulatory Commission (CSRC) are the key to the success of bonds issuance.
The solution
Beijing Capital Group issued RMB1.0bn worth of panda bonds1 on China’s exchange market on 29th May 2020 via its HKSE-listed subsidiary CEHL. The bonds have a tenor of 3+2 years, with an annual coupon at 3.10% and was 2.19 times oversubscribed on the back of strong support from institutional investors. The proceeds will be used to support domestic project construction and to supplement working capital.
Best practice and innovation
This solution supports and is a practical implementation of the Chinese government’s initiative of deep reform and opening-up of the economy. It helps to promote the development of economic globalisation towards a more open, inclusive, balanced and win-win situation.
The senior management teams of Beijing Capital Group arranged periodic visits with financial institutions such as Capital Securities, FCIB and HSBC to provide guidance on the processing of the bonds issuance and demonstrated powerful support to the business.
In terms of the strict regulation on PBoC approval for opening RMB offshore basic accounts, the group was proactive in enquiring and communicating with PBoC and finally received positive feedback, which has greatly contributed to the successful account opening. The group also worked closely with the various teams of its banking partner, HSBC, including cash management, relationship management, regulatory compliance, legal, onboarding and the operations teams, which acted as the key bridge between the company and regulators via their own channels, to promote smooth communications with multiple regulators.
Key benefits
Through the deployment of the funds raised, Beijing Capital Group continues to strive for the investment and operation management of waste treatment and conversion of energy, hazardous waste treatment and soil remediation, and promote energy conservation, emission reduction and has a continuous vision on the improvement of people’s livelihoods in the pursuit of achieving sustainable development.
- Reduction in funding cost.
- Optimised capital structure.
“This issuance is a significant step in promoting the globalisation process of the Chinese debt market; the involvement of offshore non-financial enterprises in the public-offering of panda bonds is significant for the opening-up and global recognition of the domestic debt market,” explains Wong.
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