Taiwan has become the hottest place for international issuers to raise renminbi this year, while yuan bond issuances in Hong Kong has slumped as costs hover at a record high. According to Dealogic, US$1.84 billion worth of dim sum bonds had been offered since the start of the year to February 25, down nearly 70 per cent year on year. Meanwhile, US$943 million yuan of yuan-denominated bonds were issued in Taiwan, more than triple the amount in the same period last year. Analysts say lower costs and an easing of regulations are the main reasons encouraging foreign issuers to flock to the Taiwan renminbi market.On average, it is 10 to 20 basis points cheaper than issuing bonds in Hong Kong, according to HSBC’s analyst Crystal Zhao. The strong issuance of Formosa bonds is due to strong demand by domestic life insurance companies in Taiwan Becky Liu, Standard Chartered Taiwan last year eased restrictions for insurers investing in foreign currency bonds – if the bonds are issued in Taiwan, their investments are no longer subject to a 45 per cent cap on foreign asset ownership. Given the low yield environment of the Taiwan dollar market, Taiwan’s life insurers will be particularly interested in enhancing their returns by increasing their exposure to renminbi instruments. The yield for dim sum bond offerings stood at a 4.9 per cent as of yesterday, almost a record high, as investors ask for higher yield to compensate for rising risk concerns following the problems that mainland property developer Kaisa faced in making an interest payment on a US dollar bond. “The strong issuance of Formosa bonds is due to strong demand by domestic life insurance companies in Taiwan for the higher-yielding Formosa bonds after the rule change last year,” Standard Chartered analyst Becky Liu said. Formosa bonds are typically of long tenors and tend to meet strong demand in Taiwan. Liu said that made it easier for issuers to issue long-dated bonds in Taiwan than in Hong Kong. The companies that have tapped the Taiwan market so far this year, or have announced plans to do so, include Morgan Stanley, Goldman Sachs, Export-Import Bank of Korea, Maybank, Deutsche Bank and Air Liquide Finance. “These issuers have strong incentives to issue long-dated RMB bonds, as the after-swap cost in USD terms is 30 to 40 basis points cheaper than their funding costs if issuing USD bonds outright,” Liu said. “This is because swap rates have recently reached record highs. We believe this trend will continue for some time until swap rates come down, likely in the second quarter.” Standard Chartered expects a strong year of issuance in the Formosa bond market, with total issuance of formosa bond to reach 60 billion yuan this year. Societe Generale’s head of rates strategy (Asia ex-Japan), Frances Cheung, said: “With the current high levels of CNH CCS (offshore yuan cross-currency swaps), it is appealing for some issuers who are looking to issue in RMB and swap the proceeds into USD. Hence the primary market is likely to be active.” Renminbi deposits in Taiwan totalled more than 310 billion yuan as of January, while Hong Kong’s deposits totalled 981 billion yuan.
