Dim sum bonds become hot item

More Korean companies are issuing offshore renminbi bonds, as worldwide issuance of the so-called dim sum bonds heats up with global companies seeking to finance their ventures in China in its home currency.

With the still-young market moving from simple bets on currency appreciation to financing new businesses, analysts expect the growing demand for dim sum bonds will continue to buoy the market. Authorities are moving to establish new trading centers beyond Hong Kong.

Early this month, Shinhan Bank raised some 625 million renminbi (roughly $100 million) in one-year dim sum bonds, or offshore renminbi-denominated bonds settled in Hong Kong.

The bank became the fifth Korean company to issue renminbi bonds since the first batch issued last July by food giant CJ CheilJedang. It was followed by bonds from Korea Eximbank, Korea Development Bank and Lotte Shopping, bringing the total issuance to 6.02 billion renminbi.

Korean companies’ offerings are just a drop in a growing pond. The worldwide issuance of offshore renminbi bonds has skyrocketed to 129.8 renminbi in 2011.

And as of Wednesday, the global dim sum bond issuance during the first quarter more than doubled on-year to reach 18.1 billion renminbi, according to the Korea Center for International Finance (KCIF).

The market for dim sum bonds is relatively young. After the first was issued by China Development Bank in 2007, global activity kicked off in earnest after China eased what had been tight controls on foreign companies’ dim sum bond issuance and cross-border trade in July 2010.

And unlike financial companies, which tended to issue dim sum bonds with an eye to swapping the resulting renminbi for dollars at a competitive borrowing rate, more and more industrial players are issuing dim sum bonds to finance their China operations.

Ford Motor, which has a number of joint ventures in China, raised 1 billion renminbi by issuing three-year dim sum bonds on March 14 for the first time, while machinery maker Caterpillar issued its third batch of dim sum bonds just two days earlier.

McDonalds is reportedly planning to finance the opening of some 250 new restaurants in China in 2012 with dim sum bonds, according to Bloomberg News.

And with Beijing recently easing channels for offshore renminbi transfers into mainland China plus official moves underway to make London an offshore trading center for the renminbi since January, dim sum bonds are expected to remain a key way for Korean companies’ to raise money.

“HSBC forecasted that between 260 billion and 310 billion renminbi would be raised through dim sum bonds this year,” said Kim Hang-seon, research fellow at KCIF. “With both Chinese and foreign companies expanding businesses in mainland China, more demand for financing through dim sum bonds is expected.”

By Lee Jung-yoon [joyce@joongang.co.kr]