Global investors hunger for dim sum bonds

BEIJING -- Despite a faltering renminbi, record high issuance and growing appetite around the world have reaffirmed the offshore yuan bond as a tempting investment.

Buoyant issuance

"Dim sum" bond issues surged to 277 billion yuan ($44 billion) in the first six months of this year, close to the 280 billion yuan for the whole of 2013, according to researchers with Singapore's DBS Bank. More than 80 percent of issuers were from the Chinese mainland and Hong Kong.

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The spread between onshore and offshore borrowing costs is likely to remain wide, and more companies are expected to borrow overseas in the second half.

On June 30, Huaxia Bank, a mid-sized Chinese commercial lender, issued a dim sum bond at an annual rate of 4.95 percent, much cheaper than domestic levels.

Refinancing may also drive new issues. According to Ivan Chung, senior vice president, Greater China Credit Research and Analysis at Moody's, as two-year and three-year bonds expire this year, issuers will have to refinance, perhaps with longer-term dim sum bonds, and the market will expect more diverse products.

Unflinching enthusiasm

Although renminbi depreciation spooked some currency traders, it did nothing to quell bond buyers enthusiasm to widen exposures to offshore yuan products.

A study by Fitch showed that offshore yuan bonds typically offered investors higher yields than comparatively rated US dollar-denominated bonds. Furthermore, yuan bonds are not as vulnerable to further US QE tapering as bonds of other emerging economies.

As the yuan fluctuates, the offshore yuan bond market keeps to normal fixed-income trading rather than becoming a tool to bet on the yuan.

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