Dim sum issues reflect diversity
Yuan offerings from Canadian province and Thai developer cover both sides of the risk spectrum
Two offerings in Hong Kong's offshore market for yuan-denominated debt signal that a gentle maturing of the three-year-old sector could still be a wild, high-risk ride for the uninitiated.
The Canadian province of British Columbia yesterday closed a 2.5 billion yuan (HK$3.2 billion) sale of a one-year bond that pays a coupon of 2.25 per cent. It was the first foreign sovereign-backed issuer to use the so-called dim sum market, and its triple-A rating put it in the top tier of safety for investors.
At the other end of the spectrum, Thai property developer Ananda Development was selling a perpetual dim sum bond with a 9.5 per cent coupon. Both the issuer and the bond were unrated.
Analysts say the two transactions are clear indications that yuan-denominated debt is becoming an increasingly acceptable asset class to all manner of investors and issuers - whether in the safety of a sovereign bond or the high-yield end of so-called junk bonds.
"The dim sum market was previously limited to Chinese corporates and large multinationals, but it's definitely becoming more diversified. We will see more sovereigns, quasi-sovereigns and Asian corporates using the market," said one investor who had considered the Ananda deal.
The Canadian bond launched with guidance at the 2.35 per cent area and was priced at 2.25 per cent.
The fact that the province was raising a moderate amount of money in an unusual currency at a short tenor suggested the deal was more about building trade relations than funding.
"The province of British Columbia is very keen to promote itself as the link to China from within Canada," said James Fielder, the head of HSBC's local Asia-Pacific currency syndicate, which ran the bond deal.
"They have been most actively investigating the use of yuan bonds to try to increase financial and economic ties with China."
Ananda's deal is more a push into the speculative realms - the polite term for the jargon of junk bonds - of what dim sum debt can offer.
Banks launched the offer with no specific size, only stating on the term sheet that it would be of "benchmark" proportions. That typically implies a deal in excess of 500 million yuan
With a market cap of US$269 million, the issuer is small and unknown to local investors, and the firm only listed on the Bangkok stock exchange in December last year.
An investor who looked at the Ananda bond, but declined to buy, said he could get better value in the secondary market.
Existing three-year B-plus-rated dim sum bonds from mainland property developer Future Land currently yield 9.75 per cent, and another three-year dim sum bond from property developer Powerlong yields 9.6 per cent.
But the fact that the firm is trying to tap dim sum investors is seen by some as a sign that the burgeoning market for yuan-denominated debt is getting to the stage where it has enough traction to start developing more exotic offerings.
Such high-yield deals are typically irresistible to private banking clients, who have bought US$22 billion of Chinese property bonds in the year to date, all but one of which was rated investment grade by Moody's or Standard & Poor's.
Moreover, the private banks tend only to be comfortable recommending investments when the issuer is covered by the bank's research department, and not many banks cover Ananda. Barclays, CLSA and CIMB are leading the bond.