CHINA’S credit market got its first floating-rate corporate bond in more than four years, offering investors an option to hedge against rising rates after yields saw their biggest monthly jump since 2022.
Shanghai Lingang Economic Development (Group) this week priced a one-billion yuan (S$183 million) floating rate note with a 20-year tenor. It’s the first floating rate note in China’s credit market since April 2020, according to Bloomberg-compiled data.
The issuer will pay a 2.66 per cent coupon rate in the first five years, including a fixed credit spread of 78 basis points over China’s five-year sovereign bond yield, said a person familiar with the matter. The coupon will be reset every five years to reflect changes in the benchmark rates, according to the prospectus.
The timing of this issuance is surprising to some market watchers. Wang Chen, co-founder of Belt & Road Origin (Beijing) Tech, a provider of credit-risk analysis, said issuers tend to benefit more from such notes when interest rates are likely to drop further.
Calls to Shanghai Lingang went unanswered on Wednesday (Aug 28).
China’s corporate debt markets have been jolted recently by Beijing’s efforts to to cool down a bond rally. Corporate bond yields on three-year AAA rated company notes have jumped 18 basis points this month and are poised for the biggest monthly rise since November 2022, according to a Chinabond index.
To investors who are grappling with a low-interest rate environment and facing the risk of a rally reverse, the pricing structure of a floating note offers an option to potentially gain from a rise in interest rates in the future.
Despite the recent yield jump, corporate issuers have been enjoying low funding costs in China as the central bank keeps rates low to stimulate the economy. Such inexpensive financing is attracting borrowers, with issuers pricing a record 11 trillion yuan of bonds this year. BLOOMBERG
