Dim Sum Bonds

In: Business and Management

Submitted By ztpccnx
Words 4815
Pages 20
JANUARY 19, 2011

GLOBAL CORPORATE FINANCE

SPECIAL COMMENT

The Current Menu for Renminbi Bonds in Hong Kong: Dim Sum or Synthetic?
Overview
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Table of Contents: OVERVIEW MARKET PERSPECTIVE SURGE IN RENMINBI DEPOSITS AND TRADE SETTLEMENTS IN HONG KONG GROWTH IN RENMINBI TRADE SETTLEMENTS SUBJECT TO REGULATORY MEASURES SURGE IN DIM-SUM BOND ISSUANCE DIVERSIFICATION OF ISSUERS THE “DIM-SUM SUBSTITUTE”: SYNTHETIC RENMINBI BONDS

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This report addresses recent developments in the offshore market for bonds denominated in mainland China’s currency, the Renminbi (RMB), whether settled in RMB or another currency. Called “dim sum” bonds when settled in RMB or “synthetic” if settled in other currencies such as U.S. dollars, these debt instruments have so far come out primarily in Hong Kong, with several synthetic convertible bonds in Singapore. However, in future, Chinese authorities may allow offshore RMB transactions elsewhere, and more euro-RMB bonds1 issued in other financial centers could soon appear. A comment answering investors’ frequently asked questions on our approach to rating both types of these bonds will follow within a few weeks. The progressive internationalization of the RMB will facilitate growth in Hong Kong of both kinds of RMB-denominated bonds. In particular, the rapidly expanding volume of the city’s deposits and of trade settlements in RMB has driven growth in dim-sum bonds, and the Chinese government’s allowance last week for Chinese enterprises to settle direct overseas investment in RMB will catalyze this trend. However, the market is still at an early stage, and evolving regulations for RMB business in Hong Kong will determine the speed and sustainability of its growth. A diversification in the types of issuers and issuances for dim-sum bonds has already occurred, with corporate-bond tenors of three years or less. The…...

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