Foreign companies lose taste for dim sum bonds

Written by Aparna Iyer | Mumbai | Updated: May 21 2013, 06:08am hrs
Four years since the first dim sum bond was issued, the interest in raising funds denominated in renminbi outside Chinese shores seems to have waned.

Data from Bloomberg show that so far in 2013, only $27 billion has been raised through dim sum bonds. However, out of this amount, more than 78% was raised by Chinese companies and the remaining by others. The skew towards Chinese issuers has become more pronounced over the past three years. In 2011, 49% of the funds raised through dim sum bonds were raised by companies outside China. And in 2012, only 32% of the issuers were non-Chinese companies.

In all, a mere $75 billion has been raised through dim sums since the first issue in 2009.

Dim sum bonds are bonds denominated in renminbi issued outside China by both Chinese and non-Chinese companies, and are usually listed in Singapore and Hong Kong exchanges.

Besides the novelty factor, issuers from other countries were warming up to dim sum bonds owing to the increased trade with China. The sharp rise in the yuan against the dollar also fuelled interests as issuers could get cheaper funds once the currency is swapped with dollar. China's controlled exchange rate, the yuan, has risen by about 9% during 2010-2011. In 2012, the yuan appreciated further by 1% and in 2013 so far, it has appreciated by 1.57%. On Friday, it was trading at around 6.1412/$.

Even Indian companies have dabbled in dim sum bonds. IDBI Bank was the first to raise about $100 million through dim sums in 2011. The bank again raised $100 million through such bonds in 2013 through its Dubai office. ICICI Bank too raised a similar amount through dim sum bonds in 2012.

The rationale of borrowing through non-dollar bonds was that we could do a currency swap and the cost would be 40-50 basis points lower than that of a dollar bond, said an IDBI Bank official.

In a typical cross-currency swap, non-Chinese companies lend yuan while borrowing dollars. If swap rates increase, the return from the yuan loan rises, offsetting the cost of bonds.

Bankers say that the lull in dim sum bond issuance during 2012 is largely due to global economic uncertainties.

These bonds should pick up now again but it is not clear whether Indian companies will continue to come, said an investment banker with a foreign bank.

In 2013, bankers believe, dim sum bond issuance could pick up as China's economic growth outlook improves and the yuan appreciates as a consequence of the improved fundamentals. However, the dollar bond market is also extremely buoyant, for Indian companies to queue up for dim sum bonds, they would have to offer a substantial interest-cost saving over dollar bonds.