Dim Sum faces refinancing challenge
About 54% of outstanding Dim Sum bonds come due in 2014.
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The offshore renminbi bond market is facing an unprecedented challenge this year as Rmb209bn (US$34bn) of bonds and certificate of deposits mature in 2014, the largest refinancing wave the nascent market has yet faced.
The split of maturing paper is 66% from Chinese banks, 27% from Chinese corporations and 7% from foreign issuers.
Considering that around Rmb370bn of Dim Sum debt was issued in 2013 (including short-term and long-term paper) the refinancing need looks achievable.
Bankers and analysts are optimistic that Dim Sum issuance will reach a new high this year, given more participants in the market and the growing offshore pool of renminbi.
“For the primary market, we expect issuance of bonds and certificates of deposit to reach Rmb520–Rmb570bn in 2014,” analysts at HSBC predict.
A flood of issuance from PRC financial institutions is widely anticipated, with issuance via notes and CDs from China’s banks expected to total more than Rmb150bn.
The first full week of the year saw Agricultural Development Bank of China and Bank of China’s London branch seek to get a jump on the supply, with respective deals of Rmb3bn and Rmb2.5bn.
Offshore branches of Chinese banks entities are frequent issuers – they contribute around 30%–40% of issuance in the Dim Sum market – but BOC London’s trade was relatively unusual in being London-targeted. It comes after similar deals from China Construction Bank and ICBC. Of the four big Chinese commercial banks only Agricultural Bank of China has not issued a London bond. Market chatter is that such a transaction will come soon, as the British and Chinese authorities seek to develop the City’s status as a major offshore renminbi centre.
Chinese banks’ onshore entities have a current issuance quota for Dim Sum debt from the National Development and Reform Commission totalling Rmb75bn. Only some Rmb11.5bn of the quota has been used.
State-owned enterprises, on the other hand, have yet to use any of their quota of Rmb75bn. The list of SOE issuers expected to return to the market includes CNPC, Baosteel and Sinochem.
Joining SOEs are high-yield property developers which have used the Dim Sum bond market as one of their key funding sources, especially as the onshore interest yields have risen substantially and the onshore loans are hard to access.
Another important issuer will be the Ministry of Finance which has Rmb12bn coming due, but is anticipated to print around Rmb20bn–Rmb30bn annually to support the development of the internationalisation of renminbi.
Foreign Dim Sum issuance will be an important indicator of the extent of that internationalisation. The Chinese government and Dim Sum bond underwriters have tried hard to promote the market to global borrowers, but the keenest foreign Dim Sum issuers are those companies with operations in China. Foreign banks, for example, only make opportunistic visits when cross-currency swap rates are very favourable.
With US interest rates rising and the more frequent use of renminbi in foreign trade – as well as rising swap rates – bankers hope that there will be more foreign Dim Sum issuance from banks and corporates.
They are also hopeful that SSA issuers will follow in the footsteps of British Columbia which issued Dim Sum bonds last year.