In the past, investors have mainly bought dim sum bonds for the prospects of renminbi appreciation and hence demand for short tenors has typically been the strongest. But the dim sum bonds from Japanese trading firm Mitsui & Co and Chinese steelmaker Baosteel reflect a growing investor appetite for the five-year tenor.
Mitsui yesterday evening priced a Rmb500 million ($79 million) five-year dim sum, or offshore renminbi bond, at a coupon of 4.25%, at the tight end of the 4.25% to 4.5% guidance. The deal attracted more than Rmb2.25 billion of orders from 65 accounts. There was strong participation from fund managers, which were allocated 68%. Private banks took 14%, banks 12% and insurance funds 6%.
By geography, Hong Kong investors were allocated 69%, Singapore investors 23%, the rest of Asia 5% and Europe 3%. HSBC was the sole bookrunner and the issue is expected to be rated A2 by Moody's.
Earlier yesterday, Baosteel had priced its Rmb2.9 billion ($460 million) triple-tranche bond, which attracted Rmb8.3 billion of demand from 95 investors. Notably, the steelmaker received Rmb4 billion worth of orders for the five-year tranche, while the two- and three-year tranches attracted Rmb1.7 billion and Rmb2.6 billion of demand respectively.
Pricing was also tighter for the five-year tranche. It came at a size of Rmb1.5 billion and paid a coupon of 4.15%, or 22.5bp less than the 4.375% coupon it paid late last year for its Rmb500 million five-year bond. The Rmb500 million two-year tranche priced at 3.25% while the Rmb900 million three-year tranche priced at 3.675% -- both these coupons were higher than what it paid for the two- and three-year tranches on its debut deal in November.
The strong response to Baosteel's five-year bonds is encouraging for borrowers that want to issue longer tenors. Most of the demand came from fund managers and insurance funds, which were allocated 40% and 35% respectively.
Baosteel does enjoy rarity value as it is a highly rated company and the first and only non-financial Chinese firm to have obtained approval and been granted a quota from the National Development and Reform Commission to issue a dim sum bond directly through its mainland entity.
The secondary trading of its bonds also set a positive tone for the market. All three tranches traded above the par issue price yesterday with the Baosteel 2014s quoted at 100.25, the 2015s at 100.20 and the 2017s at 100.20/100.50. Bank of China was the sole bookrunner.
After a slow start this year compared to the dollar bond market, dim sum issuance shows signs of picking up. Dubai lender Emirates NBD and Mitsubishi UFJ Lease & Finance both wrapped up investor meetings targeted at a dim sum deal on Thursday. The meetings for Emirates were arranged by HSBC and Standard Chartered, while the meetings for Mitsubishi UFJ were arranged by BNP Paribas, Citi and Morgan Stanley. Meanwhile, French conglomerate Alstom also plans meetings next week via HSBC.
“Investors seem to have adjusted their expectations of renminbi appreciation, while issuers seem to have also accepted the higher yield levels,” said one debt banker.
Bankers observe that more of the issuers coming to market now have a genuine need for renminbi, and hence are willing to tap the market at higher prevailing yields. There are also signs that yields are stabilising or even trending slightly lower. “The yields offered by Chinese banks for certificates of deposit (CDs) have fallen from 3% early this year to the 2.9% area,” said another debt banker.
However, the market has moved against borrowers that are looking to swap renminbi to dollars. According to a banker, the three-year offshore renminbi cross currency swap has fallen by 70bp from 2% in mid-January to 1.30% on Wednesday, which means that it is 70bp less attractive for a borrower to swap renminbi back to three-month dollar Libor.