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Bonds
BusinessBanking & Finance

Saudi Aramco’s panda bond may be an endangered deal as market’s small size hinders fundraising by oil giants, bankers say

  • While Saudi Aramco has listed the yuan as a potential fund-raising currency for a debt issuance, bankers say the market size could hinder the deal
  • Year-to-date issuance of panda bonds is down 50 per cent compared to 2018, though some analysts see it picking up in 2021

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An oil tank at Saudi Aramco’s Shaybah oilfield in Saudi Arabia. Photo: Reuters
Georgina Lee
Saudi Aramco, the record holder for the most capital raised in a stock sale, created a stir when it said in November that it may sell bonds denominated in yuan, potentially challenging the US dollar’s dominance of the petrodollar market.
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But it may be easier said than done, according to bankers who arranged the oil giant’s US$20 billion worth of bond fundraising this year and last. Listing the yuan as a possible currency choice is one thing, but it is quite another to actually raise vast amounts of capital denominated in the Chinese currency.

At issue is the pool in which panda bonds – yuan-denominated bonds sold by non-Chinese issuers – trade. In the first 11 months of this year 30 sales of such debt generated US$6.1 billion, down from US$6.5 billion raised through 21 deals in the same periods of 2019, and less than half the U$13.1 billion raised from 45 deals a year before that, data from Refinitiv shows.

For the world’s second largest bond market, that is a mere puddle compared to the 13 trillion yuan (US$2 trillion) generated in the onshore yuan corporate bond market in the first 11 month of this year, according to mainland media reports citing data from CSCI Pengyuan Credit Rating.

The panda bond market has remained relatively small, because the deal size is limited to between 1 billion and 3 billion yuan by the lack of liquidity in the market. An application process which lacks certainty for issuers is also hindering bigger deals, said David Yim, regional head of capital markets for Greater China & North Asia at Standard Chartered.

“Given the relatively small issue size, panda bonds are unlikely to form a significant part of these oil groups’ overall bond issuance,” said Yim.

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He said the US dollar remains the main transaction and funding currency in the oil sector.

Few foreign commodity players have issued panda bonds in the last three years. Russian aluminium producer UC Rusal in 2017 issued one worth 500 million yuan for refinancing purposes, according to media reports. Then in 2018, commodity trading group Trafigura raised the same amount in a three-year deal.
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