China has priced its first yuan-denominated green sovereign bond sale in Canada, attracting orders worth more than 59 billion yuan, or about 15 times the size of the offering.
The Ministry of Finance's 4-billion-yuan ($599-million) sale was split evenly between three- and five-year notes, which priced at yields of 1.4 per cent and 1.5 per cent respectively, according to people familiar with the matter.
The deal drew over 59 billion yuan of orders, or around 14.75 times the size of the offering, they said.
"The symbolism outweighs the substance," Zhang Xuhua, deputy general manager of fixed income at Yunnan International Trust Co., Ltd. in Shanghai told The Globe and Mail. "The timing itself conveys a message that goes beyond finance."
The issuance, which began marketing on Nov. 9, is China's first offshore yuan-denominated sovereign green bond sale outside Hong Kong, Macau and London.
It comes amid warming relations between Ottawa and Beijing, following meetings between Chinese and Canadian officials last week that produced tariff reductions and an agreement to extend tariff refunds on certain Chinese steel products until the end of 2028.
"Against this backdrop, the issuance of sovereign bonds signals warming bilateral relations underpinned by financial co-operation," Zhang said.
Chinese Vice Premier He Lifeng is visiting Canada this week to co-chair the second China-Canada Economic and Financial Strategic Dialogue with Canadian Finance Minister François-Philippe Champagne and International Trade Minister Maninder Sidhu.
Canadian Prime Minister Mark Carney is also expected to meet Chinese President Xi Jinping later in November.
The sovereign issuance reflects a growing global market for yuan-denominated bonds, known as dim sum bonds when issued outside mainland China.
Ricco Zhang, senior director for Asia Pacific at the International Capital Market Association in Hong Kong, said an inaugural sovereign green bond issue in London provided a "useful precedent" for understanding the Canadian deal.
"Canada similarly already has RMB clearing and liquidity infrastructure, so the issuance can be seen as an effort to activate an existing offshore RMB centre and broaden the geographical investor base, rather than simply raising funding that could not be obtained elsewhere," he said in an emailed response to questions.
He said this week's Canadian issue is small, but the London transaction showed a modest sovereign issue can still play an important role for benchmarking and market development.
All the same, though the London deal was oversubscribed and attracted a range of different investors, they were mostly based in the Asia-Pacific region.
The ICMA's Zhang said there is an "opportunity to broaden participation among Canadian and other North American institutions over time."
Some experts say enthusiasm for the deal may be hampered by the relatively weak appeal of Chinese bonds, which currently offer yields far lower than those of other major markets.
The yield on five-year Chinese government bonds currently stands around 1.36 per cent, compared with 3.37 per cent for its Canadian equivalent.
"For investors who hedge into Canadian dollars to avoid currency risk, I don't see a clear yield advantage in this green bond over a Canadian government bond of the same maturity," said Hadiza Djataou, portfolio manager and head of fixed income macro at Mackenzie Investments in Toronto.
At the same time, the new issue could attract buying from funds following major international bond indexes, if they are added to an index they track, she said.
The green bond proceeds are intended for environmentally beneficial projects.
Royal Bank of Canada was a joint bookrunner for the transaction. e2gold.ca reported this week that RBC has agreed to buy Australian investment manager Yarra Capital.
This story was written by the e2gold.ca newsroom from reporting by The Globe and Mail, Bloomberg.com, Forbes Middle East and The Standard (HK). Quotes are checked word for word against that reporting.