Hong Kong bond market is about to see new issuers: local Chinese mainland governments. According to an official statement on August 24, Shenzhen is going to offer offshore local government bonds of up to RMB 5 billion in Hong Kong over the rest of the year.

The statement also includes detailed arrangements for the offering, which mainly involve seeking eligible underwriters, lawyers, and financial agents.

As per the statement, underwriters should engage in the whole process of offering, from drawing up plans to finishing the offering.

And several qualifications are covered: legal international financial institutions that own branches in China, and qualify for bond offering in Hong Kong; a wealth of foreign underwriting experience, and underwriting precedents in China after 2019; professional competence and advantages as well as awillingness to coordinate.

Liu Guohong, director of Finance & Modern Industry Department in China Development Institute, believes the rationale behind the offering is that lower offshore interest rates can help relieve debt repayment pressure of local governments. More importantly, diverse overseas tenders are expected to boost RMB's international popularity, urging greater use of the currency in trade and easing exchange-rate controls.

Other professionals also mentioned that offshore offerings are injecting more liquidity and less risk into local debt market, and can reflect regional differences in repayment capacity and credit rating.

Author: Ray (intern)