China Cinda is planning a $3bn bond sale, underscoring investor appetite in China’s markets, even as the economy shows fresh signs of weakness.

Dow Jones/Hong Kong


A Chinese company created to clean up the country’s bad debt is planning a $3bn bond sale, underscoring investor appetite in China’s markets, even as the economy shows fresh signs of weakness.
The offering by China Cinda Asset Management this week is set to total $2bn in international debt markets, a person familiar with the deal said. That is more than the $1.5bn it last sold almost a year ago in May, and will likely be sold at lower borrowing costs too. The remaining $1bn may be sold in the domestic market.
The interest in the debt mirrors the buying seen in stocks, with markets in Shanghai, Hong Kong and Shenzhen all seeing big rallies recently as investors flood in.
Cinda has been a favourite for international investors because it is backed by Beijing and the yields are far higher than investors get in most other places as global central banks keep interest rates low. Cinda’s initial public offering in Hong Kong’s stock market in late 2013 created a buying frenzy that included some of the world’s best-known distressed-debt investors.
The company is known as a bad bank because it buys soured loans from banks and companies. But in recent years, it has also expanded into buying out the debt between companies, mostly receivables.
Its maiden bonds issued in May last year have soared, with yields falling to 3.1% and 4.3% for the five- and 10-year bonds, respectively. That compares with 4% and 5.625% at the previous sale. Its new bonds to be sold this week will be close to the old bonds’ prevailing yield levels.
Beyond Cinda, demand for even riskier Chinese corporate debt has been picking up, sending Asia’s junk bond index – dominated by Chinese property developers – soaring amid favourable mortgage policies and easing monetary conditions. Signs emerged that investors have put behind concerns on Chinese developer Kaisa Group Holdings, which was once on the brink of default.
Valuation is a big allure too. The extra yields, or credit spreads, above benchmark US Treasurys offered by Chinese corporate bonds have climbed to a peak of 3.8 percentage points in January from a low of 3 points in July last year. Although the spreads have retreated to 3.26 points now, they are still higher than counterparts in the US or Europe, where interest rates are at rock-bottom levels.