GlobalRMB awards: Best for ABS, CNH, G3 and Panda bonds

For this award, GlobalRMB focused on the segments of the soaring securitization market in China that have caught the eye of foreign investors and issuers, with the goal to recognise the bank that has done the most innovative work in the structuring and distribution of these deals. In that respect, Standard Chartered emerged as a clear leader.

Among foreign issuers, carmakers have rapidly become a pillar of the onshore securitization market. The bank has worked for all key issuers in this segment, including BMW, Daimler, Ford, and Nissan, completing nine deals as underwriter, and acting as financial advisor in four of them. It ranks first for auto originators, beating foreign and local competitors both by number of deals and share of total volumes during the awards period, based on Dealogic data.

That last factor testifies to something crucial, namely Standard Chartered's ability to successfully leverage a global expertise in ABS and tailor it to a market that remains a work in progress. China is only starting to dip its feet in certain ABS categories, such as non-performing loans and residential mortgage backed securities, but it is clearly beginning to open up.

It is here, once again, that the Bond Connect has shown its ability to radically change the conversation about access to the Chinese capital markets. Standard Chartered participated in Ford's Fuyuan 2017-2 retail auto loan Rmb3.8bn ABS deal, which marked the first time the scheme was used to sell an onshore ABS deal to global investors via Bond Connect.

It has entered new areas of the market, showing that while auto has been a core driver of growth, there is plenty more to come from China. Standard Chartered was a syndicate member on the first RMBS deal, priced in June 2018, to obtain an international rating and sold to foreign investors via Bond Connect. The deal, Jianyuan 2018-11 Retail Residential Mortgage Securitization Trust, had CCB Trust as trustee.

All of the above, however, would not have distinguished Standard Chartered from the competition in isolation. The deeper reason is that Standard Chartered has risen above some of the underwriters, both domestic and foreign, that have jumped on ABS transactions only to load up their own balance sheets. While some of those flows would still count as foreign, they are less noteworthy.

Perhaps by virtue of its comparatively smaller size, Standard Chartered has had to do the legwork, picking up and the phone and convincing overseas investors about the merits of China's burgeoning ABS market. That is not just a smart move for the long term development of securitization in China, it is also a smart move for any bank hoping to be recognised as the best around.

There is no denying that the offshore RMB (CNH) bond market has been through a rough patch. The renminbi devaluation which started in August 2015 has hit the market hard, scaring off issuers and investors alike from the idea of issuing offshore debt in the currency. The market's waning ambitions are best symbolised by the action of China itself, with the Ministry of Finance, which had made efforts to build the offshore RMB yield curve through bi-yearly auctions, stepping back in the size of these deals and even by returning to the dollar bond market in 2017 after a 13-year break.

That being said, the dim sum market has not faded away completely. Standard Chartered emerged as the clear winner on the basis of one key factor: its ability to deliver syndicated, commercial paper-type deals. Those are the deals that GlobalRMB believes will remain key to judge the success or failure of the CNH funding market. These are also the deals where we can better judge execution, which clearly is not the case for private placements.

Standard Chartered did extremely well in the awards period not only by underwriting some of the key public deals, but also by successfully bringing to market several sole-led deals, an impressive 18 out of 27 deals during the period under consideration according to GlobalRMB data. The bank has a substantial market share, having underwritten a third of syndicated deals during the awards period, also based on GlobalRMB data. That is nearly twice the market share of its nearest competitor.

In a market suffering from disappearing liquidity, as a result of the global slide in the CNH deposit pool, distribution and execution have become key. Solid distribution relies in large part on having built an investor base during the glory days. As new CNH investors are difficult to come by, Standard Chartered tells GlobalRMB the DCM team's essential resource has now become the spreadsheet which marked down investors that participated in the market's surge during the early 2010s.

The Sinochem deal, which was sole-led by Standard Chartered, was the most impressive. In early February 2018, the issuer successfully priced its Rmb1bn 4.4% Reg S senior unsecured fixed rate notes due in 2021. The transaction broke what had been a 14 month gap since the last Chinese corporate issuer, a category that had once been the traditional driving force behind dim sum issuance. The Sinochem deal reopened the market with a number of other Mainland companies returning to CNH, five of them within one month from Sinochem's deal.

Standard Chartered was quick to take advantage of that market re-opening, helping some of those follow-up issuers, including property developer Shui On, which priced a deal and a tap in quick succession. Standard Chartered drummed up considerable market interest for the deal, which was seven times oversubscribed at the original Rmb1bn size, at which point it expanded the issue size to Rmb1.6bn. The bank also leveraged its broader RMB FX capabilities on the deal, advising Shui On on an FX-linked structured investment to enhance the yield on the bond before the proceeds were swapped to dollars.

Chinese issuers have come to dominate Asia’s dollar bond market. By all accounts, they are also extending their reach even further, eyeing euro deals too. It is a cut-throat market where the competition differ not just on fees but on market practice, with Chinese securities houses in particular coming under fire for letting standards drop.

That context makes HSBC's win in the category all the more impressive. The bank successfully guided a wide range of Chinese issuers, both investment grade and non-investment grade, into an equally diverse range of deals. The bank adapted to challenging market conditions, helping issuers pick the best windows, as well as putting to work its expertise well beyond vanilla bonds in areas such as capital solutions and, notably, green bonds.

On top of that, HSBC must be commended for its ability to win high-profile mandates without the advantage of the Chinese banks, which can often rely on long-standing banking relationships with corporate clients back home when those same companies decide to tap the international capital markets. In this new phase of the Asian bond markets, where Chinese banks have fully established themselves as key players, the ability to keep the lead in this segment of the market by an international bank, albeit one with deep roots in China, is all the more impressive.

On sheer volumes, HSBC fared very well in the awards period, ending up second in the league table of top underwriters, based on Dealogic data. Of the nearly 140 deals priced, HSBC showed a commitment to serving primarily investment-grade issuers out of the Mainland, with a focus on privately-owned industrial names, which made up the bulk of the issuance, followed by state-owned industrial companies and financial institutions.

The bank won top billing on several landmark transactions, as well as a number of the more innovative deals that priced in the awards period. The dollar bond return of the Chinese Ministry of Finance was an example of the former, where HSBC acted as joint lead manager (JLM) and joint bookrunner (JB). The bank was selected by the sovereign without a formal pitch, reaping the benefit of its broader China strategy and relationship with the onshore authorities. The deal marked the first sovereign dollar bond by China in over a decade.

HSBC was also joint global coordinator, JLM and JB for a $7.25bn deal from Postal Savings Bank of China in September 2017, the largest ever AT1 capital issuance by a Chinese commercial bank, the largest ever deal by a Chinese FIG issuer, and the bond with the lowest coupon ever for a Chinese AT1.

Beyond dollars, the bank was JGC and structuring advisor on ICBC Luxembourg branch's €1.1bn climate bond in the same month, the first FIG green bond compliant with both ICMA and People's Bank of China green bond principles and the first Silk Road bond with a certification from the Climate Bond Initiative. The sustainable finance focus goes beyond green, with the DCM team telling GlobalRMB they have already dedicated two members to focus on socially-responsible investments.

Overall, HSBC succeeded in volume, scope and innovation in its work for Chinese G3 issuers, laying the foundation for what will no doubt be a pillar of its DCM business for years to come.

The Panda bond market remains an experiment, with a difficult and sometimes obscure application process and challenges around the use of proceeds for those that do decide to tap the market. But the market holds the promise of becoming an important bridge linking the vast onshore investor base with a global issuer base that has yet to discover the opportunities of the renminbi.

If there is one bank that truly embodies the Panda market bridging onshore and offshore, it is Bank of China. The obvious factor is that as one of China's largest state-owned banks, Bank of China is itself a direct vehicle for Beijing's policies.

And yet Bank of China has managed to shine well beyond the politically-driven sovereign Panda deals that defined the early days of this market. Bank of China has instead built on its growing offshore footprint to originate and then successfully syndicate a wide range of Panda bonds. It is that ability to coordinate across China's border that makes it stand apart from its closest competitors.

At the top of the list of notable mandates is, of course, the sovereign Panda for the Republic of the Philippines, which is also the Most Impressive SSA Issuer in the 2018 GlobalRMB awards. While many sovereign deals in this market have been almost entirely symbolic, the Philippines stood apart for its groundbreaking use of the Bond Connect scheme to find an investor base both in China and abroad simultaneously. Bank of China tells GlobalRMB it leveraged its teams in the Mainland, as well as Hong Kong, Singapore and London, to close the deal at the pricing it did. Syndicating a deal on that basis showcases the bank’s mature execution capabilities, which have fast become big enough to rival its biggest competitors.

In a market as complex as the Panda bond market, the bank's volumes are telling. Bank of China closed 15 deals in the awards period, a third of the total, but unlike some of its domestic competitors it successfully stayed away from devoting energy to the red chip category, where Chinese firms use offshore vehicles to issue bonds.

Rather, Bank of China was mandated on key foreign deals, including four by carmaker Daimler, our Most Impressive Corporate Issuer this year, as well as those by Trafigura, Veolia and the first deals by Japanese financial institutions, MUFG and Mizuho. Bank of China shone as the go-to bank for corporate and FIG issuers, and that is without mentioning its role in other notable sovereign issues, such as those by the Emirate of Sharjah, the first from the Middle East, and the return of the Province of British Columbia, one of the Panda market's earliest entrants.

Bank of China was the Best Panda Bond House of 2018 in part because it has risen beyond simply leveraging its status as a leading onshore bank. It is a true conduit for global issuers and investors that are finally becoming aware of the onshore bond market's potential as a funding source.