(Bloomberg) — Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund that has at times bought equity to stabilize the stock market, issued bonds that pushed its total local debt sales this year to a record.
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The firm has now sold 207 billion yuan ($29 billion) of notes this year, the most since it first tapped the onshore credit market in 2010. The fresh issuance includes 9 billion yuan of three-year debt securities and 15 billion yuan of five-year bonds, people familiar with the matter said.
China’s onshore equity market rallied in the past month after new stimulus steps helped it become one of the world’s best performers with a 23% gain, even after it gave up some of those advances in recent weeks. But in previous rough patches over the past year before the more recent support, Central Huijin had waded in to buy exchange-traded funds.
Given the low financing costs in the local credit market and cheap valuations of stocks, investors such as Huijin may be reinvesting debt proceeds into equity assets, said Wei Liang Chang, a strategist with DBS Bank Ltd.
Huijin’s bond offering documents say that the most recent bond sale proceeds will be used to optimize its debt structure, replenish working capital or for other purposes approved by regulators.
Huijin’s parent, China Investment Corp., declined to comment on the debt offering. The fund has no outstanding bonds.
Huijin’s holdings of trading assets, a term that typically refers to securities held to be resold for profit, increased 388% to 581.8 billion yuan in the first six months of this year, the firm said in its semi-annual report.
“Further state-led buying in Chinese stocks could sustain the recovery in risk sentiment,” Chang said.
Such trades are likely profitable. The average coupon of Huijin’s yuan bonds this year is around 2.2%, the lowest ever. The CSI 300, a key benchmark stock index, has jumped about 15% this year.
The People’s Bank of China last week launched a swap facility, which allows institutional investors to access liquidity from the central bank to purchase stocks. The program has received applications for over 200 billion yuan, according to the PBOC.
–With assistance from Zhang Dingmin, Mengchen Lu and Zheng Wu.
(Updates with response to request for comment and adds chart)
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