China's Ministry of Finance sold 4 billion yuan of green sovereign bonds in Canada on Monday, its first such issue in the country, and drew orders of 54.04 billion yuan, or 13.5 times the amount on offer, the ministry said on Tuesday.

The deal is small next to China's domestic government bond program, but it matters to investors in Asia for two reasons. The notes will trade on the Hong Kong Stock Exchange, adding to the pool of offshore yuan assets in the city, and the pricing sets fresh sovereign benchmarks for issuers selling yuan debt outside the mainland. The ministry also tied the sale directly to warming economic ties with Canada.

The ministry split the issue evenly. It sold 2 billion yuan of three-year bonds at a coupon of 1.4% and 2 billion yuan of five-year bonds at 1.5%. The State Council approved the sale in advance, and the ministry had said on Nov. 5 that it would raise no more than 4 billion yuan during the week of Nov. 9.

Who bought China's green bonds

Investors in the Asia-Pacific region took 77% of the bonds, the ministry said. The rest went to the Americas (15%) and Europe (8%).

By investor type, banks bought 45%, sovereign and supranational institutions 32%, funds, asset managers and insurers 22%, and dealers 1%. Investors that describe themselves as green or sustainable accounted for 41% of the book, according to the ministry, which described demand from international investors as strong.

Sovereign and supranational buyers, a group that includes official reserve managers, took nearly a third of the deal. The ministry did not give a breakdown of the order book by tenor.

The finance ministry held a ceremony at the Toronto Stock Exchange on the morning of Nov. 10, local time. Vice Finance Minister Liao Min said the issue carried out a consensus reached in January between President Xi Jinping and Canadian Prime Minister Mark Carney, as well as the outcomes of the bilateral economic dialogue. He said it showed China's commitment to green, low-carbon development and opening up, the ministry reported. Bank of China Vice President Yang Jun and Jim Byrd, global head of macro products at RBC Capital Markets, were among those who attended.

China-Canada dialogue sets the backdrop

The bond sale followed the second China-Canada Strategic Economic and Financial Dialogue, held in Vancouver on Nov. 8 and 9. Vice Premier He Lifeng co-chaired it with Canadian Finance Minister Francois-Philippe Champagne and International Trade Minister Maninder Sidhu, according to Xinhua.

The two sides exchanged views on the global outlook and on their own economies and policies, and agreed to work together in the Group of 20, the Asia-Pacific Economic Cooperation forum and multilateral development banks, according to a joint fact sheet published by China's finance ministry. They also restated support for multilateralism and for a transparent, predictable environment for trade and investment.

The fact sheet said the two sides agreed to deepen cooperation in the financial sector, including market access for financial services, and to promote exchanges between capital markets and financial regulators. The two finance ministries signed a memorandum of understanding on fiscal cooperation, the financial regulators signed a cooperation agreement on a supervisory dialogue, and the central banks adopted working rules for a financial working group. Both sides welcomed the implementation of their bilateral currency swap arrangement and recent progress in trade talks.

He said relations between the two countries had "turned for the better," Xinhua reported. Champagne said Canada attaches great importance to its relations with China and wants closer policy coordination in economic and financial fields, according to the same report.

Trade has been moving in the same direction. Capital Times reported earlier that Canada's trade with China hit a record in the third quarter.

What to watch

For Hong Kong, the listing adds a Chinese government green security to the exchange's offshore yuan offering. The ministry said the sale would deepen exchanges between China and Canada in green finance and economic cooperation.

The joint fact sheet said the next round of the economic and financial dialogue will be held in China. No date was given. The finance ministry has not said whether further green sovereign issues outside China are planned this year.