FIRST
Bond markets: Dim sum, lose some
H
igh-yields resulting from better sentiment, a spill-over from the robustness of US peers and limited supply, caused CNH bonds to enjoy stable total returns in September, according to HSBC Head of China Research Zhi Ming Zhang. CD issuance returned to its April level when banks were preparing for the quarter-end liquidity shortage and investors were happy to accept a 3.1-3.3% annual return, Zhi added. “In 4Q, we expect CNH bonds to trade up at first, followed by a mild correction. This should bring full-year total returns to 5-7%. If the audit on local government debt confirms reports that it has doubled to c40% of 2012 gross GDP, sentiment will likely be dampened when the details are released.”
A conducive market environment The dim sum bond market is on a tear and with the Chinese government taking more steps to spur the development of the market, we can only expect a more conducive environment for dim sum issuance. Ivan Cheung, Vice President - Senior Credit Officer at Moody’s Investors Service, notes that the Chinese central government will move in the coming weeks or months to develop the dim sum bond market further by allowing a more diverse group of companies to issue these bonds. This expectation is based on indications from the government that it wants to foster the growth of the offshore renminbi (RMB) bond market. “We believe some of the companies will
be based in China and owned by regional and local governments. The central government will likely allow these state-owned entities, which have no experience raising offshore funds and no offshore funding structures, to tap the dim sum market directly without going through the usual regulatory approval process for offshore USD bond issuance,” he adds. Cheung reckons that increasing yields in the US dollar bond market and in China’s onshore funding market will increase the dim sum market’s appeal as an alternative funding channel and motivate more Chinese companies to issue dim sum bonds. The increased supply of these bonds and diversity of issuers will likely attract institutional investors who are seeking RMB-denominated investments. The increasing the number and type of companies that can issue dim sum bonds reflects Chinese government’s support for development of this market. Such initiatives, says Cheung, are essential in developing the RMB as an asset class and possibly even a reserve currency. “We expect the government will introduce more policy initiatives to reduce the barriers that have hindered the development of the dim sum market, such as the difficulty remitting issuance proceeds back to China,” he adds. Positive investor sentiment The inaugural Fitch Ratings APAC Senior Fixed-Income Investor Survey reveals that investors are upbeat about the growth of the renminbi onshore and offshore bond markets. Investor optimism
OFFICE WATCH
OCBC unveils a 6-storey China headquarters
Oversea-Chinese Banking Corporation opened its RMB1 billion (about S$208 million) corporate office in Shanghai’s increasingly prominent financial district of Pudong, making it the first Singapore bank to operate and own a headquarter building in China. It is also the Bank’s largest fixed asset investment to date in the country. The six-storey OCBC Tower, which serves as the head office of fully-owned subsidiary OCBC China, provides for 18,000 sq m of office space and has enabled the consolidation of the full range of banking divisions - including the consumer and corporate banking units, the middle office and support functions - under one roof. OCBC Bank’s presence in China dates back to 1925 with the opening of a branch in Xiamen. OCBC China commenced business in August 2007, after the Bank received the regulatory nod for local incorporation and has since ramped up its presence in the country to include 16 branches and subbranches across nine cities, up from five branches and representative offices.
12 ASIAN BANKING AND FINANCE | DECEMBER 2013
Opening ceremony of OCBC Tower
6-storey hub in China
Expect more policies to come
in the dim sum market has remained intact despite the drop in corporate issuance this year. Over three-quarters of participants expected both the on- and offshore bond market to increase by between 25% and 50% in the year ahead. This optimism was accompanied by 55% of respondents highlighting the Chinese renminbi’s appreciation potential as a key driver of interest in local-currency markets – a stronger level of currency confidence than for all other regional bond markets.