Macau Sees Bond Listing Surge in Pivot Away From Gambling

(Bloomberg) — Macau is hosting a record amount of bond listings as the world’s top gambling hub boosts efforts to diversify its economy and establish itself as an alternative financing hub for Chinese firms.

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A combined $28.1 billion of bonds have started trading this year on the Chongwa (Macao) Financial Asset Exchange Co., a local exchange known as MOX, according to Bloomberg-compiled data. Around 63% of these new notes are yuan-denominated and mostly issued by Chinese local government financing vehicles, or LGFVs.

The tally marks significant progress for MOX, where bond listings totaled slightly over $600 million at its inception in 2018, thanks to Macau’s initiatives to make debt registration cheaper and simpler than at major Asian financial centers including Hong Kong and Singapore. The latest boom also has benefited from a broader surge in offshore debt issuance by China’s LGFVs that face domestic borrowing restrictions.

“We are still at the nascent stage. We need to do a lot more to build up the pool of investors and issuers here,” Henrietta Lau, executive director of Monetary Authority of Macao, said in an interview. “Our aim is to build the bond market as a financing bridge between the mainland and the outside world.”

Prominent bond listings on MOX feature a 2 billion yuan ($274 million) offering by China’s Ministry of Finance in 2019, the first of its kind in Macau, and a 2.2 billion yuan deal by the neighboring province of Guangdong two years later. More recently, the bourse has become a popular venue for smaller listings of less than $100 million by LGFVs, a group of debt-laden issuers that borrowed heavily during China’s previous infrastructure booms.

At the current level, Macau’s bond listings represent about 26% of Hong Kong’s and up from about 3.8% in 2020, Bloomberg-compiled data show.

“The Chinese government intends to develop Macau into one of the key bond listing venues in Asia especially for offshore CNY bonds and free trade zone bonds,” said Zerlina Zeng, head of East Asia corporate research at Creditsights Singapore LLC. “LGFVs and SOEs are as a result encouraged to help promote such initiatives.”

While the push for a stronger bond listing business is part of Macau’s efforts to reduce its excessive dependence on casinos, it remains a daunting task for the tiny former Portuguese colony.

The city has in recent years taken steps to boost its appeal as a bond trading center, such as implementing a five-day registration process that’s shorter than the average time in Hong Kong. However, structuring, sales, clearing and settlement of debt offerings in many cases still occur outside of Macau. The lack of a dynamic secondary market is another hurdle.

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