Mainland China bond issuance falls as dim sum bond at lowest in five years

Beijing’s bond issue down 23 per cent annually in first decline since 2008 crisis

PUBLISHED : Monday, 30 November, 2015, 5:02pm
UPDATED : Monday, 30 November, 2015, 5:02pm

Mainland China’s international bond issuance declined this year for the first time since the 2008 financial crisis, while dim sum bond issuance has dropped to a five-year low, according to data company Dealogic.

Analysts blame the depreciation of the yuan as well as the expected interest rate rise by the US by mid-December to be the reasons behind and see no quick improvement in the near term.

Total mainland bond issuance in the international market in the first 11 months this year stood at US$100 billion, down 23 per cent from US$130.2 billion by this stage last year, according to a Dealogic report released on Friday. The number of deals has fallen from 270 to 177.

This is the first decline since 2008, when issuance fell 48 per cent year on year as the global financial crisis impacted market sentiment.

The mainland government and corporate issuance of offshore yuan-denominated bonds, known as dim sum bonds, has dropped 79 per cent year on year to US$5.1 billion, the lowest since 2010’s US$2.3 billion.

Hong Kong Securities Association chairman Benny Mau said the strong stock market in the first half of the year hurt mainland companies’ intention to issue bonds.

“When the stock market was strong in the first half of this year, many mainland companies could easily raise funds in the stock market via share placements or new listings,” he said. “This cut down the activity in bond issuance in either in the mainland or the international markets.”

He said the situation should have improved in the second half of the year as mainland stock markets faced a lot uncertainties. Both the Shanghai and Shenzhen stock markets fell more than 30 per from mid June, which was a setback to fund raising plans. Beijing stopped initial public offerings in the wake of the market rout and they only resumed this month.

“When mainland companies could not tap funds from the stock market, they would consider issuing bonds instead,” Mau said. “Dim sum bonds, however, are likely to continue to face difficulties as the yuan is continuing to depreciate, reducing investors’ interest in them.”

Beijing devalued the yuan by 2 per cent in August and many expect the currency yuan could depreciate by a total of 5 per cent this year due to the weak economy. The weak yuan has cut down investors interest to buy dim sum bonds for fear interest payments would not be sufficient to offset the valuation loss of the currency.

China Ministry of Finance is offering 2 billion yuan in dim sum bonds in the city for retail investors until December 14 but bankers said the reaction has been lacklustre.

Including those issued in the domestic mainland bond market, mainland Chinese government and private entities have issued a total of 1,769 bonds worth US$570.96 billion this year, down 15 per cent from the same period last year, but 43 per cent higher than 2013.

This still ranked mainland China as the world’s second largest bond issuers, higher than Germany at US$355.98 billion, Canada at US$255.11 billion, Britain at US$250.43 billion and Japan at US$227.33 billion, only second to the US.

The US government and companies have issued a combined 7,978 bonds to tap US$2.062 trillion, down 6.64 per cent than last year but up 1.4 per cent than a year earlier,

In terms of currency, the US dollar-denominated issuance ranked top with 80 per cent market share at US$80.2 billion year to date, which is however 19 per cent lower than 2014.

Euro-denominated bonds issued by Chinese companies reached a record high at US$11.7 billion year to date, up six times over the 2014 level.