HONG KONG, Mar 22: China Minmetals Corporation, a state-owned enterprise, completed its sale of a 2.5 billion yuan ($402.3 million) three-year dim sum bond, which attracted more than 12 billion yuan in orders and saw strong interest from central banks.
It was the fourth company to tap the 25 billion yuan quota granted by China’s National Development and Reform Commission (NDRC) to five mainland companies last year to issue yuan bonds offshore.
‘Demand was quite strong and the orders had already surpassed 2 billion yuan within an hour after the books opened,’ said a source close to the deal, adding the price guidance was later tightened to 3.65-3.75 percent from the initial 3.85 percent area.
Foreign central banks have not been frequent investors in dim sum bonds but have at times in the past bid for very high quality names.
The senior unsecured offshore yuan bond was finally priced at 3.65 percent, and the proceeds will be used for general corporate use, according to a term sheet seen by Reuters. Neither the issuer nor the bond is rated.
Baosteel Group was the first to use up its 6.5 billion yuan quota approved by the NDRC and China Guangdong Nuclear Power also sold a total of 3 billion yuan in dim sum bonds in October 2012 and January.
The latest comparable issue to China Minmetals’ bond is Huaneng Power International’s three-year dim sum bond sold in January with a coupon of 3.85 percent. The bond was quoted at 3.54/3.44 percent in the secondary market on Thursday.
The dim sum bond market remains a venue where issuers enjoy lower fund-raising cost than in China’s onshore market. China Minmetals’ September 2015 and November 2016 onshore bonds were quoted at 4.415/4.315 percent and 4.587/4.487, respectively.
HSBC, DBS Bank, Industrial and Commercial Bank of China (Asia), Agricultural Bank of China International and Standard Chartered Bank are the joint lead managers and bookrunners.
Investors are flocking to the offshore yuan bond market to seek higher returns as the red-hot dollar bond market has began to cool down and digest the heavy issuance earlier this year.
Last week, three high-yield dim sum bonds sold by Chinese firms Gemdale (Asia), 21Vianet and Russian Standard Finance drew in a total of over 14 billion yuan of orders, well exceeding the combined bond sizes.
Analysts say lack of supply and relatively higher yields in the dim sum bond market will continue to attract more investors, especially as confidence in China’s economy has improved, supporting the yuan currency. The yuan hit a record high against the U.S. Dollar on Wednesday.
Dim sum bond issuance has amounted to 46.5 billion yuan in the year to date, up about 30 percent from the same period last year, according to Thomson Reuters statistics.
CENTRAL BANKS’ APPETITE
The total order book for China Minmetals’ dim sum bond was more than 12 billion yuan from 106 accounts, including central banks, which took 16 percent of the deal.
Fund managers comprised 48 percent, while banks and private banks accounted for 26 percent and 10 percent, respectively.
‘You don’t usually see a state-owned company name in this market and investors just grabbed it once it came out,’ said another source with direct knowledge of the deal.
‘Investors like it because it’s a high quality issuer and the name is well-known, not just to those central banks, but also other investors,’ the source said.
China has been promoting the yuan to the world by encouraging more foreign investors to invest in and use the currency, with the hope of eventually elevating its global status on par with the U.S. Dollar.
The world’s second-largest economy has signed currency swap lines with more than 15 countries as part of efforts to encourage the use of the yuan in cross-border trade and investment. It was close to finalizing new or renewed currency swap agreements with Brazil, Argentina and Britain.
Some foreign central banks have also started to put the yuan assets as part of their foreign exchange reserves by investing in China’s onshore bond market as well as dim sum bonds.
South Korea’s central bank was reported to have began purchasing Chinese government bonds and could buy up to 20 billion yuan under a deal with Beijing. While Japan also said it would buy 65 billion yuan of Chinese government debt last year. ($1 = 6.2143 Chinese yuan)
(agencies)
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