(Bloomberg) — Central Huijin Investment Co., a unit of China’s sovereign wealth fund that has occasionally bought stocks to try to stabilize the stock market, issued bonds, pushing total municipal bond sales this year to a record. .
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The company has sold 207 billion yuan ($29 billion) of bonds this year, the most since it first entered the onshore credit market in 2010. The new issuance includes 9 billion yuan in three-year bonds and 15 billion yuan in five-year bonds. According to a person familiar with the matter, it is an annual bond.
China’s domestic stock market rebounded last month after giving up some gains in recent weeks, rising 23% on new stimulus, making it one of the world’s best performers. But before the recent support, Central Huijin had gotten into buying exchange-traded funds (ETFs) during a rough period over the past year.
Its holdings in trading assets (a term that generally refers to securities held for resale for profit) rose 388% to 581.8 billion yuan in the first half of this year, according to the company’s semi-annual report.
Huijin’s bond issuance documents state that the proceeds from the latest bond sale will be used for debt structure optimization, working capital replenishment, or other purposes approved by regulators.
The fund did not respond to requests for comment on the bond issue. The parent company, China Investment Co., Ltd., has no outstanding bonds.
Wei Liang Zhang, a strategist at DBS Bank, said given the low cost of funding in the local credit market and the cheap valuation of equities, investors like Huijing are willing to convert debt earnings into equity assets. He said it may be reinvested.
“Further state-led purchases of Chinese stocks could sustain the recovery in risk sentiment,” Zhang said.
Such trades are likely to be profitable. The average coupon on Huijin’s yuan-denominated bonds this year is about 2.2%, the lowest on record. The main benchmark stock index, the CSI 300, is up about 15% this year.
The People’s Bank of China last week introduced a swap facility that allows institutional investors to access the People’s Bank of China’s liquidity to buy shares. According to the People’s Bank of China, the program has received applications for more than 200 billion yuan.
–With assistance from Zhang Dingmin, Mengchen Lu, and Zheng Wu.
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