Yield demand deters dim sum debt issuers
Financial firms shun offshore yuan market because of the higher premiums they will have to pay for the notes, especially for longer tenors
Bond issuers are finding raising offshore yuan less attractive because of the higher yields they are having to offer buyers these days.
The cost of funding the so-called dim sum bonds has risen as the swap rates between the yuan and the US dollar are at record lows, tempering the pace of investment-grade corporate bond issues by foreign issuers, industry experts said at a forum yesterday.
New issues of dim sum bonds grew about 20 per cent to US$5.2 billion in the first four months of this year from the same period last year, according to data from Dealogic.
Sven Lautenschlager, an international funding officer at the treasury department of German financial institution L-Bank, which has issued four tranches of dim sum bonds in the past, said the firm was looking to issue the fifth tranche this year but could not find a good price.
Lautenschlager said L-Bank would have to pay a premium of about 110 basis points for dim sum bonds with a tenor of more than five years. In contrast, the premium would be only 10 basis points in the euro bond market.
Vincent Ho Siu-hung, a senior vice-president at the treasury department of China Construction Bank (Asia), said the yield was increasing because more issuers were tapping the dim sum bond market.
The premium was also significantly higher for long-tenor bonds, he said.
Industry experts also pointed out that risks associated with duration were among one of the key issues in the fixed-income market, putting short-dated bonds in a more favourable position as the market continued to worry about possible increases in interest rates.
Kathy Liu, an executive director at Citic Securities International's fixed-income division, said a strong mainland economy was the key to underpinning the development of the offshore bond market, suggesting that investor confidence could swing rapidly with economic headwinds.
"A decrease in cross-border currency swap has been one of the key reasons deterring international issuance," said Kenneth Lee, the head of Asia syndicate at Barclays.
"Many multinational companies have decided not to convert yuan assets into US dollars as they can use the yuan for trade and settlement purposes."
Eddie Yue Wai-man, a deputy chief executive of the Hong Kong Monetary Authority, said he was looking forward to further streamlining of policy arrangements so that all cross-border transactions currently settled in US dollars could have the option of being settled in yuan.
"This in turn could be followed by the continued relaxation of cross-border flows of yuan in and out of the mainland along with the liberalisation of its capital account." Yue said.