| HONG KONG
HONG KONG May 15 Volatility in the yuan this
year has not deterred foreign companies from selling offshore
bonds in the Chinese currency, due to heavy refinancing pressure
and ample liquidity offshore.
Issuance of so-called dim sum bonds from foreign companies
or financial institutions amounted to 13.3 billion yuan ($2.14
billion) from January to April, up 74.5 percent from a year
earlier, according to Thomson Reuters statistics.
This was at a time when the yuan fell sharply against the
dollar and wiped out all its gains recorded last year, which
made some investors rethink their outlook for the Chinese
currency and the risk of holding yuan assets.
The redback has lost a total of 3.3 percent of its value in
the first four months as Beijing targetted speculative money
that bet on one-way and non-stop yuan appreciation with the most
sustained depreciation since its landmark revaluation in 2005.
Many of these bonds have come from frequent issuers in the
dim sum market, including BP Capital Markets, Caterpillar
Financial Services and Export-Import Bank of Korea, which will
use the proceeds to refinance their soon-to-mature bonds or
repatriate them back to China for projects there.
Operations and construction projects in China enable them to
obtain renminbi revenues to repay dim sum coupons and principles
when they mature, meaning no currency mismatch or FX risk on
this front if they issue dim sum bonds.
Meanwhile, sufficient liquidity in the offshore yuan market
and low cross currency swap rates have also well supported the
huge supply in the primary market, keeping funding costs from
rising too fast for issuers.
Cross currency swap (CCS) is a tool frequently used by both
issuers and investors to swap yuan funds to dollars and vice
versa. Low CCS rates are favorable to dollar-based investors as
they can obtain cheap yuan funds with their dollars.
As the CCS rates are hovering near historically low levels,
foreign issuers that tapped the dim sum market in the past few
months mostly have real demand for yuan funds and do not swap
them to other currencies.
"The CCS level is no longer economical for issuers to swap
their renminbi proceeds to dollars. That's why none of them did
so after January and foreign companies that do not need yuan
funds disappeared in the dim sum market," said Becky Liu, a
senior strategist at Standard Chartered Bank in Hong Kong.
This year, a record amount of dim sum debt is set to mature
as most of these bonds are concentrated in short tenors of two
or three years and broad-based issuers flocked to the market
The amount of dim sum bonds issued from January to April has
already reached almost 90 percent of the 186.9 billion yuan
volume recorded for the whole of 2013.
China's Ministry of Finance (MOF) will start selling the
first batch of its dim sum bonds worth 16 billion yuan next
Wednesday, targetting foreign central banks, regional monetary
authorities and institutional investors.
WEEK IN REVIEW:
* China will further loosen restrictions on foreign
investment in the Shanghai Free Trade Zone. The "negative list"
of sectors and activities banned to foreign investors is likely
to shrink to about 130 items this year from the current 190,
said Zhang Hong, director of the fiscal and financial section of
the FTZ management commission.
* Yuan deposits at banks in South Korea rose by an
equivalent $2.0 billion during April to hit a record $9.9
billion, official data showed on Monday, as investors continued
to favour the yuan's higher interest rates.
* It is important that China moves towards a market-based
exchange rate, U.S. Treasury Secretary Jack Lew said during a
visit on Tuesday, adding that China should also ensure a level
playing field for all companies.
* Bank of China completed the sale of
its first offshore renminbi "Schengen bond" and listed it on the
Luxembourg Stock Exchange, making it the first Chinese mainland
company to issue renminbi bonds in the eurozone.
CHART OF THE WEEK:
Dim sum bond issuance keeps strong momentum: link.reuters.com/pev39v
CNH Tracker-Devaluation fears grow amid China currency drop
More stories about the CNH market
Daily onshore yuan reports
Daily China money market reports
Offshore yuan rate Onshore yuan rate
Offshore yuan dealt Onshore yuan on CFETS
THOMSON REUTERS SPEED GUIDES
($1 = 6.2291 Chinese Yuan)
(Editing by Jacqueline Wong)