By Saikat Chatterjee and Michelle Chen
HONG KONG, Sept 12 (Reuters) - As the offshore
yuan-denominated bond market tries to shake off a summer lull,
some sceptics are predicting a reduced supply of so-called
'dim-sum' debt in the coming weeks.
Yuan deposits in Hong Kong's banks have stagnated and
interest rates have risen, while August was the second lowest
month in terms of dim sum bond issuance in nearly two years at
4.88 billion yuan ($798 million).
Frustrated with the bite-sized amount of funds raised and
relatively shorter tenors, foreign companies are also beating an
alternative path to fund their onshore
But market watchers say speculation that the dim sum market
is heading into deeper funk may be overblown.
After a sharp sell-off in the Asian bond markets over the
last two months, traders and fund managers say that investment
opportunities in the investment-grade space have
grown, particularly as most dim sum bonds have a shorter
maturity profile compared with some of their Asian counterparts.
'As liquidity conditions become tighter in the region,
credit quality becomes an even more critical consideration,'
Theodorus Hadiwidjaja, a credit analyst at JP Morgan, wrote in a
Notwithstanding a squeeze in onshore money markets in late
June, dim sum market issuance has remained robust. Total
issuance in the first six months of the year has grown by a
fifth compared with the same period a year earlier, according to
Thomson Reuters data.
Regulators also remain supportive of the market, with the
launch of offshore yuan fixings in Hong Kong in June that offer
investors another avenue to hedge their fixed-income exposure
with the growth of interest rate derivatives.
More clarity on the issuance pipeline should emerge in a few
weeks after Beijing grants dim sum issuance quotas to Chinese
banks and state-owned enterprises. These quotas typically run
into billions of yuan for each of these companies.
Even on a total returns basis, the dim sum bond market has
held up despite the spike in regional and global volatility.
Monthly returns according to HSBC indexes have been flat
compared to an 8 percent drop for the broader Asian index.
While those are encouraging signs for the offshore bond
market, the reality is it remains a tiny pool for large
multinational companies which are accustomed to raising funds in
billions of dollars.
That needs to change soon.
A survey conducted for more than 120 treasurers and
corporate finance by the ASSET magazine and Standard Chartered
may provide some clues on how regulators can encourage companies
to tap this market.
In that survey, only one in 10 respondents had ever issued a
dim sum bond and 8 percent were considering an issue in the
coming months. Complaints ranged from regulatory delays to remit
funds across borders and higher costs.
At least, regulators in Hong Kong and Beijing know exactly
what to do.
WEEK IN REVIEW:
* The National Bank of Hungary has signed a three-year
bilateral foreign currency swap framework agreement worth 10
billion yuan ($1.63 billion) with the People's Bank of China,
the Hungarian central bank (MNB) said in a statement on Monday.
* HSBC said it had completed a two-way cross-border yuan
lending transaction for a Taiwanese company under a pilot
programme China introduced in August, becoming the first foreign
bank to conduct such a transaction.
* Trading of the Chinese yuan in global foreign exchange
markets has more than tripled from three years ago due to the
expansion of offshore trade, making it the ninth most-actively
traded currency, according to a survey by BIS.
* Value Partners Hong Kong Limited, a wholly-owned
subsidiary of Value Partners Group said on Wednesday
it had received approval to become a Renminbi Qualified Foreign
Institutional Investor (RQFII) to invest in China's onshore
CHART OF THE WEEK:
Performance of offshore yuan bonds and Asian debt: http://link.reuters.com/bem92v
CNH Tracker-Competition to intensify as Shanghai tussles for
offshore yuan business
Shanghai noses ahead in China's free trade zone race
Shanghai Free Trade Zone draft could be released this
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 = 6.1185 Chinese yuan)
(Editing by Kim Coghill)
Keywords: MARKETS OFFSHORE/YUAN
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