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Dim Sum Sales Double as New Elite Back Global Yuan: China Credit

November 29, 2012

Dim Sum bond sales by Chinese borrowers surged to a four-month high in November as the country’s new political elite signaled a commitment to making the yuan a global currency.

Beijing Capital Land Ltd. (2868), the developer whose shares have risen 92 percent this year, led a doubling of yuan-denominated debt sales in Hong Kong to 4.5 billion yuan ($723 million) this month. That’s the most since companies sold almost 6.7 billion yuan in July. Corporate Dim Sum returned 6.59 percent this year, compared with a loss of 3.2 percent in 2011, while similar- maturity domestic company securities returned 4.02 percent, according to Bank of America Merrill Lynch indexes.

Chinese companies increased sales of Dim Sum notes after the country’s new leaders committed to opening the economy, the yuan strengthened to a 19-year high and borrowing costs fell to the lowest in eight months. Vice Premier Li Keqiang, set to take over as premier in March, pledged next week to liberalize exchange rates, while Party General Secretary Xi Jinping said in his inaugural speech he will open the economy further. “Supply of Dim Sum bonds will increase because of the push to internationalize the yuan,” said Wee-Khoon Chong, Asia rates strategist at Societe Generale SA in Hong Kong. “There isn’t as much of a yuan-appreciation story so investors will be assessing issuers on their merits. On the other hand, there is no depreciation risk.”

Gradual Changes

China will “steadily” push forward with the liberalization of interest rates and currency markets, Vice Premier Li wrote in an article published in the People’s Daily on Nov. 21. Yuan capital account convertibility will be achieved “gradually,” he wrote.

General Secretary Xi allowed experiments in yuan trading in Hong Kong when he was the top communist party official in charge of the city’s affairs. His replacement in that role will be Vice Premier Zhang Dejiang, Hong Kong-based The Standard newspaper reported yesterday, citing a person it didn’t identify.

The pace of currency reform is set to accelerate, according to Paul Mackel, HSBC Holdings Plc.’s head of Asian FX research and Ju Wang, a senior Asian FX strategist at the bank. Full convertibility is likely within five years, they wrote in a research note dated Nov. 29.

“We believe internationalization of the renminbi is a clear direction and policy of the government,” said Samson Lee, head of debt capital markets at BOC International, a unit of Bank of China Ltd., referring to the yuan by its alternative name. “The change of government maybe slowed things down a little recently, but I think in the longer term it’s definitely going in that direction.”

Trading Band

Investor appetite for yuan securities is reviving as the yuan surged to a 19-year high this week.

The yuan declined 0.01 percent yesterday to close at 6.2281 per dollar in Shanghai, which is the upper limit of its trading band, according to prices from the China Foreign Exchange Trade System. The currency reached 6.2223 on Nov. 27, the strongest level since China unified official and market exchange rates at the end of 1993. The yuan has advanced 2.7 percent since reaching this year’s low on July 25.

The People’s Bank of China weakened the fixing by 0.01 percent to 6.2910 per dollar, 1.01 percent below the Nov. 28 closing level in the spot market. The yuan is allowed to fluctuate a maximum 1 percent on either side of the fixing.

A better outlook on the currency is an essential reason behind why issuers are tapping the market and are more confident, says Crystal Zhao, a fixed-income analyst at HSBC. “Liquidity is improving so that attracts the Hong Kong and Chinese issuers to the space.”

Currency Reform

Chinese central bankers have said they will widen the yuan trading band at some point.

Reform of convertibility will be the next step in the overhaul of the exchange-rate system, Zhou Xiaochuan, China’s central bank governor, said at a conference in Beijing Nov. 17.

“We are going to realize it, we are moving in this direction, we need to go further, we will have some deregulation,” Zhou said.

The government plans to increase the Renminbi Qualified Foreign Institutional Investor Program by 200 billion yuan from 70 billion yuan, Guo Shuqing, chairman of the securities regulator, said Nov. 11. The system allows investors to put yuan raised offshore into mainland markets.

Beijing Capital

Beijing Capital, whose projects include the five-star InterContinental Beijing Financial Street hotel, sold 2 billion yuan of three-year securities to yield 7.6 percent on Nov. 22, according to data compiled by Bloomberg. The issuance is the largest single-tranche Dim Sum offering by a company since HSBC raised the same amount in April, the data show.

Agricultural Bank of China Ltd. and China Construction Bank Corp. both sold 1 billion yuan of three-year notes at a 3.2 percent yield this month. Datang International Power Generation Co., Beijing-based power plant operator, sold 500 million yuan of bonds priced to yield 5.2 percent.

The average yield premium on top-rated three-year company bonds over sovereign notes jumped 15 basis points this month to a five-month high of 155 basis points as of Nov. 28, according to Chinabond indexes.

The yield on the benchmark 10-year government note increased one basis point to 3.55 percent yesterday, according to Chinabond.

Volvo, Caterpillar

Sales of Dim Sum securities by international companies, outside China and Hong Kong, more than quadrupled to 5.4 billion yuan in November from 1.2 billion yuan last month, the data show.

Volvo AB, the world’s second-largest truckmaker sold their first yuan-denominated notes in Hong Kong this month. Volvo issued 1 billion yuan of three-year securities at 3.8 percent, the data show. Volkswagen AG and Caterpillar Inc. also raised 1 billion yuan from sales of Dim Sum bonds this month. The German automaker sold five-year debt at 3.75 percent while Caterpillar sold debt due November 2014 at 3.35 percent.

A unit of Shandong Hi-Speed Group Co. is marketing three- year yuan notes in Hong Kong, according to a person familiar with the matter yesterday, who asked not to be identified because the terms aren’t set. Shandong International (Hong Kong) Ltd., which will issue the securities, is offering the notes to investors at about 5.9 percent, the person said.

“In the past, Dim Sum bonds have been the domain of Chinese-domiciled entities, which are usually banks,” said Swee Ching Lim, Singapore-based credit analyst at Western Asset Management, which manages $459.7 billion as of Sept. 30. “Now we are getting a whole plethora of different issuers that helps get investors’ attention.”

To contact the reporter on this story: Tanya Angerer in Singapore at

To contact the editor responsible for this story: Shelley Smith at

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