The investors of the United States seem uninfluenced by and indifferent to China versus United States trade war going on. In just weeks before the November 3 election, China has raised as much as $ 6 billion in a dollar bond issue offered to the investors in the United States.
According to the term sheet, the deal has attracted $ 27.2 billion in orders and is the fifth foreign currency-denominated bond since China reinstated its offshore debt sales program in 2017. In the Duration of the last 3 years, the Chinese authorities have issued one Euro bond and 4 dollar bonds.
The pricing of the debt is as follows:
- 25 basis points above us treasuries for the $1.25 billion 3 year tranche
- 30 basis points for the $ 2 billion 10 year tranche
- 80 basis points for the $ 500 million 30 year tranche
China has stable investment-grade credit score rankings, with S&P World Scores giving it an A+ grade and an equal A1 from Moody’s Buyers Service. These rankings are kind of in keeping with those of Japan.
As measured by credit score default swaps, the price of insuring China’s greenback money owed in opposition to default has additionally fallen in recent times. This fall is displaying that investor issues about China’s creditworthiness have waned. It now prices lower than $40,000 a year to insure $10 million of Chinese language debt in opposition to default for 5 years, Refinitiv information exhibits.
In a statement issued by the Chinese finance ministry, it was said that the successful issue of the dollar sovereign bonds has helped and assisted the Chinese issuers by establishing as well as improving a yield benchmark of more market significance. This is the first time the Chinese authorities have offered debt to investors based in the United States. The investors were most active in the tranches with longer-dated transactions and deals. These investors groups, constituted primarily of fund managers, was also the largest buyer of the thirty-year tranche. Interestingly, they accounted for 47 % of the $ 500 million sold.
It was also quite interesting to see that the rising economic and political tensions did not negate, affect, or deter U.S. investors from getting involved in Chinese deals and transactions. The geopolitical situation did not scare people away. Despite the fact that the stand-off between Beijing and Washington showed no signs of alleviating, the deal was finalized on Wednesday.
The US State Department has also submitted a proposal to the Trump administration against China’s Ant Group. The proposal has asked Donald Trump to add the financial technology firm, Ant Group, to a trade Blacklist before it is slated to go public in Hong Kong and Shanghai.
Is blacklisting of Ant Group of strategic importance?
Ant, China’s dominant mobile payments company, is popular for a lot of its services such as offering loans, insurance and asset management services, and payments. All this is carried out by its mobile apps. It is based in Hangzhou, an eastern Chinese city, with one of its most prominent stakeholders being Alibaba group holding limited, which holds a share of 33% and is controlled by Alibaba founder Jack Ma.
The decision to add the ant group to a trade blacklist will require a lot of deliberations in the White House. It is also not clear that when will the concerned agencies, which have decided to blacklist the company, review and decide upon the matter.
However, needless to say, that this move by the U.S. is to send a message across the US investors in China about the risk they may levy on themselves by entering into deals with China. It may also be brought up with the aim of influencing them to avoid and resist from taking part in the initial public offering for ant group. The listing planned in Shanghai and Hong Kong is expected to reach a record $35 billion or 27 billion pounds.
Recently, the Trump administration had banned several Chinese apps citing security threats. The Alipay payment is also not available for American users in the United States because the White House feared that the Chinese government could access the sensitive banking data of its future citizens which can, in turn, be a major threat to the country. Committee on foreign investment in the United States (CFIUS), a potent security panel, had halted its $1.2 billion proposals to purchase MoneyGram in the year 2018. The reason for the stoppage of the deal was national security risks again.
Ant Group is an affiliate of Alibaba group holding limited, a global E-Commerce giant based in China. However, only 5% of the Ant Group’s business comes from economies outside China.
The Entity List adds another level of difficulty for the firms in the United States to sell high-technology items and products to the blacklisted companies. This Entity List has become one of the favorite methods of the Trump government to take revenge from China by punishing its companies running a profitable business in the U.S. The same strategy was earlier adapted to attack Chinese telecom giant Huawei technologies by curbing access through technology deals in the U.S.
But on the careful analysis we can say that if the same strategy is used against fintech giants such as ant group, it may not yield the desired results. The impact would be more symbolic than effective and may not actually prevent or stop U.S. investors from purchasing a stake in the company. The Trump administration has been regularly pressurized and loathed to adopt more stringent tools and strategies against China. One of the suggestions received for this was to freeze the assets of Chinese companies in the States.