Nov. 7 (Bloomberg) -- Hong Kong companies are issuing a record amount of bonds in Singapore dollars as Europe’s debt crisis boosts relative yields on securities denominated in the U.S. currency, enhancing the city-state’s appeal as a rival financial center.
Singapore-dollar bond sales by borrowers from Hong Kong have risen to $2 billion this year, from $671 million in all of 2010, according to data compiled by Bloomberg. Developers including Henderson Land Development Co. accounted for at least 96 percent of the total. At the same time, Hong Kong companies’ offerings of U.S. dollar notes have shrunk to $1.8 billion from $7 billion in 2010.
Hong Kong borrowers are turning to Singapore as Europe’s deepening debt crisis has driven relative yields on Asian U.S. dollar debt higher. Singapore’s currency market, Asia’s biggest by trading volume, is an additional attraction, enabling efficient conversion to other regional denominations.
“Many companies feel that due to the current volatility and uncertainty in Europe, spreads are being driven higher than usual,” Clifford Lee, head of fixed-income at DBS Bank in Singapore, said in a phone interview. “Because of this the dollar bond market is presently a lot less accessible than it used to be.”
Outside Japan, Asian sales of U.S. dollar bonds slid to $3.8 billion in October, from $12.5 billion in the same period a year earlier. Dollar bonds in Asia returned 5.8 percent in October, the most in any month since November 2008, after losing 6.3 percent in September, JPMorgan Chase & Co. indexes show.
The extra yield investors demand to own the dollar bonds of Hong Kong developers instead of government debt has risen 144 basis points to 331 basis points since Jan. 3, versus a 70 basis-point increase to 261 for securities of real estate companies globally, according to Bank of America Merrill Lynch’s Global Corporates, Real Estate index.
Henderson Land revisited Singapore’s market with a S$200 million ($158 million) five-year bond priced at 260 basis points over the Singapore swap offer rate on Oct. 31. Henderson Land’s U.S. dollar denominated 10-year bonds sold in 2009 are trading at a yield of 390 basis points over Treasuries, according Royal Bank of Scotland Group Plc prices.
The company’s S$200 million seven-year bonds sold on Sept. 8 are changing hands at a spread of 309, up from 297 on their first day of trading, according to prices from Nomura Holdings Inc.
Hong Kong Vs. Singapore
Cheung Kong Holdings Ltd. returned to Singapore’s bond market on Oct. 21, increasing its 5.125 percent perpetual bonds initially sold on Sept. 1 by S$230 million. Wheelock & Co. and its Wharf Holdings Ltd. unit tapped the Singapore bond market twice this year, with a S$350 million offering of 4.5 percent notes on Aug. 22 and a S$420 million deal in July.
Hong Kong and Singapore have been locked in a battle to establish themselves as Asia’s key financial center.
Earlier this year, Singapore’s economy was poised to overtake Hong Kong’s gross domestic product, based on International Monetary Fund estimates in April, spurred by the Singapore dollar and the island’s two casinos. Hong Kong’s economy has been hurt due to its currency peg to the U.S. dollar.
Singapore surpassed Tokyo this year as the busiest market for currency trading in Asia, spurred by growth in the region’s emerging markets that has led foreign-exchange traders to shift more of their top staff to the city state, based on the most recent surveys by the Singapore Foreign Exchange Market Committee and Tokyo Foreign Exchange Market Committee.
DBS Bank, a unit of DBS Group Holdings Ltd., was hired to arrange seven of the eight bond sales in Singapore by Hong Kong borrowers this year.
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