Perpetual Bond Issuance Expected to Accelerate as PBOC Continues Central Bank Bill Swaps

The People’s Bank of China’s (PBOC) launch of a second round of central bank bill swaps (CBS) has been taken as a sign that the issuance of perpetual bonds is on track to accelerate.

On 27 June PBOC announced that it would be undertaking a second round of CBS in 2019, with a total volume of 2.5 billion yuan, a tenor of one year and a fee rate of 0.25%.

The swaps would be made available to primary open market dealers via fixed fee rate quantity tenders, with an initial settlement date of 27 June 2019 and a maturation date of 27 June 2020.

On the same date Huaxia Bank also issued 40 billion yuan in perpetual bonds, with market observers seeing the conjunction of both events as a sign that further issuance is set to accelerate.

Since the start of 2019 Beijing has allowed certain banks to issue perpetual bonds, in a bid to expand channels for improving their capital standing.

PBOC announced in January that it would launching CBS operations, allowing primary open market dealers to swap the perpetual bonds of qualified banks for central bank bills, as a measure to shore up the liquidity of the new instruments.

In January PBOC also announced that it would allow the perpetual bonds issued by banks with credit ratings of no less than AA to be included as accepted collateral for medium-term lending facilities (MLF), targeted medium term lending facilities (TMLF), standing lending facilities (SLF) and re-loans.

In February PBOC launched the first round of CBS with a fee rate of 0.25%, a volume of 1.5 billion yuan and a term of one year.

PBOC said at the time that the move would increase the liquidity of bank perpetual bonds, support capital supplementation of banks via the issuance of perpetual bonds, and strengthening the ability of the financial sector to support the real economy.

Bank of China became the first issuer of perpetual bonds on 25 January, after grabbing approval for a 40 billion yuan issuance. The issue was two times oversubscribed, while the issuance rate of 4.5% was on the lower range of expectations.

Since then China Minsheng Bank and Huaxia Bank have both issued 40 billion yuan in perpetual bonds, while Shanghai Pudong Development Bank just recently obtained approval for a 30 billion yuan issuance.

According to a report from Diyi Caiing at least another 14 banks have obtained approval from shareholders assemblies to issue 555 billion yuan in perpetual bonds.

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