| HONG KONG, July 31
HONG KONG, July 31 The supply of yuan bonds in
China's offshore market is expected to remain robust in the
coming months as issuers take advantage of cheaper financing
costs to roll over maturing debt even amid concerns over a
volatile currency and a slowing economy.
The healthy pipeline of debt comes on top of a record
issuance in the half-year ending June 30, which saw a record 350
billion yuan ($56.63 billion) of bond sales, close to the
full-year total in 2013, according to Thomson Reuters data.
Market watchers say the heavy issuance only offsets a chunk
of the maturing so-called "dim sum" debt this year with a total
of 48 billion yuan bonds remaining to be refinanced by the end
of the year, according to estimates by HSBC analysts.
"Besides frequent issuers, we also expect debut companies
backed by first-tier provincial or city governments to come in
the following months, such as domestic ratings of AA+," said
Crystal Zhao, a fixed income analyst at HSBC.
The $120 billion and growing dim sum market saw the first
bond issuance from China's local government financing vehicle
(LGFV) and the first bond backed by a standby facility of credit
line from a bank in the past month.
Beijing Infrastructure Investment, wholly owned by the
Beijing municipality and with a rating of A+/A1/A+, sold a
three-year dim sum bond at 3.75 percent, the second-lowest
coupon this year from China state-owned companies.
China's provincial government controlled Sichuan Development
also completed the sale of a 1 billion yuan dim sum offering
with the support of a standby loan last week.
Though the dim sum market is yet to see a real default,
negative news about China's onshore bond market has kept foreign
investors alert to potential risks these Chinese names carry.
And higher-quality debt issues will be more highly sought after.
"Caution over China's credit events in H2 suggests issuance
by IG (investment grade) names is likely to be well bid," said
Liu Linan, a strategist at Deutsche Bank in Hong Kong.
In fact, among the new issues of rated bonds in the first
half of the year, investment-grade accounted for the majority,
reversing the situation in 2013, as investors shunned risky
names in the backdrop of defaults and a slowdown in the property
market in China.
Chinese construction company Huatong Road & Bridge Group
avoided a bond default at the last minute last Wednesday. The
case came after the country's first public bond default in
March, when Shanghai Chaori Solar Energy Science and Technology
failed to make interest payments on a bond.
Yang Xi, an analyst at China Citic Securities in Beijing,
suggested buying into policy bank bonds with tenors of 3-5
years. While for credit products, Yang favoured non-rated debt
sold by state-owned companies and property issues with a rating
of BB or above.
WEEK IN REVIEW:
* South Korea's yuan payments value in June rose more than
six-fold from a year earlier, taking it to eighth position in
the world for yuan payments excluding China and Hong Kong,
global transaction services organisation SWIFT said on Tuesday.
* U.S. money manager Van Eck Global partnered with China
Asset Management (Hong Kong) to launch an exchange-traded fund
(ETF) tracking a China A-Shares index and the ChiNext board
focusing on small- and medium-sized enterprises (SME).
* The Qianhai Bay economic zone in the southern Chinese city
of Shenzhen is to auction four parcels of land next month, the
second auction this year, to draw more e-commerce and
trade-related companies to the hub.
* With the Hong Kong-Shanghai trade connect scheme linking
both the city's stock markets set to become a reality by the
four quarter of 2014, investors are wasting no time to position
themselves. Large capital inflows have pressured the Hong Kong
dollar higher while some analysts are busy upgrading exchange
and brokerage stocks.
CHART OF THE WEEK:
Growing dim sum bond issuance: link.reuters.com/zam52w
In the space of four years, China's offshore yuan bond market
has gone from virtually zero to one of the biggest local
currency bond markets in Asia. It is now beginning to rival the
Singapore and the Hong Kong dollar bond markets both of which
have been around for decades.
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THOMSON REUTERS SPEED GUIDES
($1 = 6.1800 Chinese yuan)
(Editing by Saikat Chatterjee and Jacqueline Wong)