Yuan’s steady gains whet appetite for China’s offshore dim sum bonds in Hong Kong
- Offshore yuan bonds, or dim sum bonds, are attracting investors who expect greater value with the Chinese currency seen as rising further this year
- More first-time issuers, such as Hong Kong Mortgage Corporation and Cathay Pacific, have tapped this market lately
Hong Kong’s offshore yuan bond market has seen a resurgence in interest this year, with expectations of persistent yuan appreciation, combined with their stronger performance relative to bonds issued in other currencies, have whetted investors’ appetite for the so-called dim sum bonds.
Several first-time issuers have also taken the opportunity to tap the dim sum bond market, with Hong Kong Mortgage Corporation (HKMC) and airline Cathay Pacific debuting in the offshore yuan market. These issuers have taken advantage of cheaper funding costs, which have been made possible by favourable currency swap rates that help them save 10-15 basis points compared to if they had tapped the dollar bond market directly, bankers said.
“An overall expectation for a stronger yuan over the next few quarters has been the key driver for the increased level of dim sum bond issuance in recent weeks,” said Conan Tam, head of Asia-Pacific debt capital markets at Bank of America (BOA).
For the year up to July 2, issuers have raised a total of US$6.9 billion across 79 issuances, up 43 per cent from the US$4.8 billion raised across 56 deals during the same period a year ago, data from Refinitiv shows.
For a frequent US dollar bond issuer, raising capital in the CNH market can help diversify its investor base and give it access to a different pool of liquidity, said BOA’s Tam. The bank forecast that the yuan’s exchange rate versus the US dollar would be 6.3 by end of this year, strengthening from 6.55 for the third quarter.