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RPT-UPDATE 1-Daimler issues landmark corporate "panda" bond in China
March 14, 2014 / 10:11 AM / 4 years ago

RPT-UPDATE 1-Daimler issues landmark corporate "panda" bond in China

* First foreign, non-financial corporate bond in China

* Sells $81.5 million, one-year bond with 5.2 pct coupon

* Beijing has pledged to ease restrictions on capital flows

* Debut comes after China’s first domestic bond default (Repeats to add additional reporter. No change to main text)

FRANKFURT, March 14 (Reuters) - German luxury carmaker Daimler AG has sold a 500 million yuan ($82 million) bond to Chinese investors, the first foreign, non-financial corporate bond issue in China’s domestic market.

“We are pioneers with this bond issue, and at the same time are helping to open up the Chinese capital market for international issuers,” finance chief Bodo Uebber said in a statement on Friday.

The bond, for which Daimler has worked with the Bank of China and the Chinese financial supervisory authority, met with strong demand, the company added.

The one-year note had a coupon of 5.2 percent, according to a release posted on the website of the National Association of Financial Market Institutional Investors, China’s interbank market regulator.

The yield on benchmark one-year Chinese commercial paper rated AAA- was 5.24 percent on Thursday, while the yield on benchmark AAA was 5.11 percent, so Daimler’s bond lies between the two, closer to AAA-.

The so-called panda bond adds fixed income as a source of funding to the bank loans that Daimler has used to refinance a large part of its Chinese business.

“The key appeal of the onshore Chinese market for foreign corporates is that it allows them to diversify their investor base,” one London-based syndicate banker said.

Daimler is currently investing to overhaul its factories in China, the world’s second-largest economy, to equip them for production of the new Mercedes C-class sedan for Chinese customers..

The bond debut, which was flagged by Reuters in January, comes a week after solar equipment producer Chaori Solar missed an interest payment, marking China’s first domestic bond default, which analysts said may force a re-pricing of credit risk in the country.

Though Daimler is likely to use the proceeds for its Chinese operations, other foreign issuers could eventually win permission to move funds raised in China to other locations.

As part of a broader reform push, Beijing has pledged to ease restrictions on the flow of investment funds into and out of the country.

The only foreign entities to issue panda bonds had been state-backed financial institutions, including the Asian Development Bank, the Japan Bank for International Cooperation, and the International Finance Corp., the private-sector investment arm of the World Bank.

Chinese and foreign firms have previously issued yuan-denominated “dim sum” bonds in Hong Kong in recent years. Unlike domestic bonds, dim sum issues are not subject to approval by Chinese regulators.

$1 = 6.1361 Chinese Yuan Reporting by Ludwig Burger in Frankfurt, Josephine Cox in London, Ken Wang in Beijing and Gabriel Wildau in Shanghai; Editing by Victoria Bryan and Mark Potter

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