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China to raise billions in rare US debt deal as trade tensions persist

Planned $3bn bond sale would be Beijing's third since 2004

Shipping containers stacked at a port in Shenzhen, Guangdong Province. The bond offering comes as China's economic growth slows, but the country's creditworthiness is still regarded as very strong by debt investors.   © Reuters

China is planning to sell $3 billion in U.S. dollar bonds this month, wooing foreign investors at a time of heightened trade tensions with the U.S. and turbulence in its own stock market.

If successful, it would be the country's second dollar-bond sale in a year. China's Ministry of Finance has tapped a dozen Chinese and global investment banks to handle the offering and plans to market the securities to investors next week, according to people familiar with the matter.

China is planning to sell bonds that mature in five, 10 and 30 years, and become a regular issuer of sovereign debt, the people added.

The offering is coming at a delicate time for the world's second-largest economy. China's gross domestic product growth is slowing, and the pace of investment in factories and public-works projects has cooled this year. The U.S. has imposed tariffs on hundreds of billions of dollars worth of Chinese exports and is threatening more of them. China's stock-market benchmark, the Shanghai Composite Index, is down roughly 15% this year.

Despite those issues, debt investors still regard China's creditworthiness as very strong, thanks to the country's robust foreign-currency reserves and large trade surplus.

In October 2017, the country issued $2 billion in five- and 10-year bonds at slightly higher interest rates than what the U.S. Treasury was paying to borrow at the time, even though China's credit rating is three to four notches below that of the U.S. That offering was multiple times oversubscribed by Chinese and foreign investors.

Benchmark U.S. Treasury yields have since risen, following multiple interest-rate hikes by the Federal Reserve. Prices of China's bonds issued a year ago have fallen as their yields have climbed. But the securities that mature in 2022 currently yield about 3.2%, or about 0.3 percentage point above comparable Treasurys--higher than its 0.15 percentage point spread a year ago.

The 10-year bonds China issued a year ago now yield 3.5%, about 0.45 percentage point above comparable Treasurys, versus 0.25 percentage point last October.

The coming sovereign-bond sale will help set new interest-rate benchmarks for Chinese companies and municipalities that have been active issuers of debt in the U.S. dollar-bond market in recent years. If China can borrow from global markets at low interest rates like it did a year ago, that could help other Chinese debt issuers raise money by selling dollar debt.

Asian companies outside of Japan have sold $185 billion in U.S. dollar bonds so far in 2018, of which roughly half has come from Chinese firms, according to ANZ Research. Overall Asia ex-Japan corporate debt issuance is down 17% from a year ago.

"It's opportune for China to do a longer-dated sovereign bond sale" while long-term interest rates are still relatively low by historical standards, said Sanjay Guglani, Chief Investment Officer of Silverdale Funds in Singapore.

The dozen banks handling the sale include Bank of China, China Construction Bank, Deutsche Bank, Goldman Sachs and J.P. Morgan, according to a memo to investors seen by The Wall Street Journal. They plan to hold a meeting for debt investors in Hong Kong on Oct. 9, and the sale is likely to commence shortly after.

(Dow Jones)

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