The Southbound Bond Connect opens Friday under the cloud of Evergrande

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The Southbound Bond Connect opens Friday under the cloud of Evergrande

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A brand-new channel for mainland financiers to acquire abroad bonds opened on Friday, even as unpredictability remained over the fate of greatly indebted designer China Evergrande Group.

The Southbound Bond Connect is a plan that enables institutional financiers in mainland China to purchase the Hong Kong bond market “through connection between the Mainland and Hong Kong financial infrastructure services institutions,” according to the joint statement by the People’s Bank of China and the Hong Kong Monetary Authority onSept 15.

HKMA Deputy Chief Executive Edmond Lau explained the opening as a “major breakthrough” which finishes the two-way opening of China’s bond market through Hong Kong.

“I think the biggest benefit would be that it helps significantly enlarge the investor base of our Hong Kong bond market,” Lau informed CNBC’s Emily Tan.

“Mainland investors, they have very high savings rate and they have a need to diversify their risk and asset portfolio and therefore, this is really a good direct and also convenient channel for them to invest into the offshore bond market through Hong Kong,” he stated.

The Southbound Bond Connect is among several “connect” programs that connect the mainland markets with HongKong Other comparable programs consist of the Stock Connect, which enables financiers in the mainland to trade some stocks in Hong Kong, while likewise permitting foreign financiers to gain access to Shanghai and Shenzhen noted shares in the mainland.

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The launch of the brand-new bond financial investment channel for mainland financiers comes as concerns stay over debt-ridden Evergrande’s capability to settle an enormous interest on a dollar-denominated bond that was due Thursday.

While a system of the business dedicated to paying the interest on a mainland-traded bond previously today, Evergrande has actually so far been quiet on the $83 million dollar bond interest payment, with more discount coupon payments due in the coming weeks.

Even though no payment was made on Thursday, the business will not technically default unless it stops working to make that payment within 30 days.

“We cannot comment on the affairs of individual companies, but what we can say is that the Hong Kong banking sector’s exposure to the high-leverage real estate developers on the mainland are not significant,” Lau stated.

“We believe that any impact rising from a fallout of these companies are manageable in Hong Kong,” he stated.

— CNBC’s Emily Tan added to this report.

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