Expectations of weaker yuan make Dim Sum loans more tempting -Basis Point

Thu Mar 20, 2014 11:24pm EDT

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March 21 (Basis Point) - Expectations of a weaker yuan will help bolster the offshore yuan loan market, said loan bankers in the region, by steering mainland borrowers towards raising Rmb rather than US dollars when tapping the offshore market for cheaper funds, Basis Point, a Thomson Reuters publication, reported on Friday.

The largest offshore yuan, or Dim Sum, loan to date - a Rmb2 billion (US$321 million) three-year offshore financing for China Universal Leasing Co Ltd - was launched this week as the yuan fell to its weakest against the US dollar in more than 11 months.

A loan banker involved in the China Universal Leasing deal told Basis Point that borrowing in Rmb reduces exchange rate risk in a weak yuan environment and saves borrowers the trouble of swapping US dollars obtained offshore back into the local currency.

"After all, what they need on the mainland is Rmb, not US dollars," the banker said.

A growing number of Chinese corporates have crossed the border for cheaper loans in recent years, but most of them have raised funds in US dollars instead of Rmb.

In 2013, Chinese firms raised a staggering US$56 billion in Hong Kong, of which only Rmb4.6 billion (US$739 million) was in the form of Dim Sum loans, according to Thomson Reuters LPC data.

Some market watchers had pointed to the yuan's appreciation as one major factor that hindered the growth of Dim Sum loans.

The yuan had risen against the dollar every year since 2010. However, this year the central bank has engineered a fall in the currency to shake out hot money betting on one-way appreciation, and the yuan's decline has accelerated since the trading band widened on March 17 to 2 percent either side of the daily fixing.

Meanwhile, loan pricing for both US dollars and Rmb is cheaper offshore. In 2013, US dollar loan pricing was roughly 30bp cheaper in Hong Kong than on the mainland, according to Thomson Reuters LPC data.

In an onshore example, Deutsche Leasing (China) Co Ltd is currently raising a Rmb1 billion three-year onshore term loan with a margin of around 95 percent of the PBOC rate, Basis Point said. The one- to three-year PBOC rate stands at 6.15 percent.

And offshore, China Universal Leasing's Rmb2 billion, three-year term loan is offering a margin of 240bp over three-month CNH Hibor. Three-month CNH Hibor was 2.33 percent as at March 20.

DEAL DETAILS

China Universal Leasing's Rmb2 billion term loan is led by Bank of Taiwan, CTBC Bank, First Commercial Bank, Hua Nan Commercial Bank and Nomura, according to Basis Point.

State-owned parent China General Technology (Group) Holding Co Ltd is providing a letter of comfort to the loan.

The bullet facility offers a margin of 240bp over three-month CNH Hibor and comes with an interest-rate floor of 3.85 percent.

Banks are invited to join at four ticket levels. Mandated lead arrangers committing Rmb300 million or more get an all-in of 275bp via an upfront fee of 105bp; joint lead arrangers committing Rmb200-299 million get an all-in of 270bp via a 90bp fee; lead arrangers committing Rmb100-199 million get an all-in of 265bp via a 75bp fee; and arrangers committing less than Rmb100 million get an all-in of 260bp via a 60bp fee.

Funds are for general corporate purposes.

A site visit is scheduled for March 31 to April 1 in Beijing and responses are due on April 25.

In November 2013, the borrower got an increased US$238.5 million three-year dual-currency term loan from 15 banks. Led by Mega International Commercial Bank and Morgan Stanley, that deal comprised a US$90 million tranche and a Rmb905 million tranche. The US$ tranche pays a margin of 370bp over Libor, while the Rmb tranche pays 150bp over CNH Hibor. Banks got an upfront fee of 70bp for commitments of US$10 million or Rmb80 million. (Reporting By Sandra Tsui; Editing by Anne Marie Roantree)

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