Taiwan's first triple-tranche renminbi bond, from Bank of Communications on Monday, underlines the market’s ability to generate demand for renminbi products.
BoCom's Rmb2 billion ($328 million) bond highlights the success of the island, which is competing with other financial cities to be a major offshore renminbi hub, in attracting renminbi business.
Taiwan had accumulated Rmb165.8 billion at the end of January, according to data released by the island's monetary authority, a 17-fold increase from February 2013 when it started its renminbi deposit business.
The market, however, may be undervalued by most issuers, compared to other markets, given that only 15 Formosa bond deals have been done and the issuers are mostly limited to local banks and companies, as well as Chinese banks (except two from foreign banks). Only two issuers had tapped the market year-to-date.
In fact, the Taiwanese market can provide longer-term tenors for renminbi bonds and attract interest from investors who target higher coupons — longer terms usually means higher yields, thanks to its large insurance industry with strong needs in longer-term investments, said renminbi analysts.
Currently the renminbi bonds issued in Hong Kong (so called dim sum bonds) have a short tenor of two or three years. Companies who tap the Formosa bonds market can hit a longer term, such as the seven-year tenor in the BoCom deal and even longer than 10-year tenors, according to analysts.
The Rmb2 billion Formosa bonds of BoCom are an example. The Hong Kong branch of the Chinese state bank for the first time issued three tranches, including a seven-year tranche, of notes in the market.
The deal, which was priced on Monday night, attracted strong demand with more than Rmb3.2 billion of orders from 60 investors. Insurance companies and pension funds who are keen on longer-term investments bought 66% of the Rmb500 million five-year notes and 74% of the Rmb500 million seven-year bonds.
Taiwanese investors took 83%, 87% and 81% of the three-, five- and seven-year tranches, respectively. Singapore-based investors are also interested in longer-term notes as they bought 6% of the seven-year paper.
From the perspective of the issuer, the triple-tranche structure can help it enrich dim sum bonds’ maturities and diversify its financing costs, said a source close to the company.
BoCom will pay a coupon of 3.45%, 3.85% and 4.15% for the three-, five- and seven-year notes, respectively.
HSBC was sole bookrunner and joint global coordinator with Bank of Communications Hong Kong Branch. Local banks Bank of Taiwan and Cathy United Bank also helped in the transaction.
Development in other markets
Meanwhile, other offshore renminbi bond markets are making progress in adding new asset classes and bringing new issuers to the market.
International Finance Corp (IFC) on Tuesday issued a Rmb500 million renminbi-denominated green bond, the first ever in the offshore renminbi market. A green bond is a tax-free bond that enables capital raising and investments for new and existing projects with environmental benefits, according to the definition by the International Capital Market Association.
The three-year bond has a yield of 2.0% and will be listed on the London Stock Exchange.
The landmark deal, combining two key global market themes of renminbi-denominated financing as well as sustainable funding initiatives, is another step in the internationalisation of the currency, according to a capital market observer.
At the same time, the dim sum market continues to see deal flow and is attempting to lure various issuers to tap the market.
eSun Holdings, a Hong Kong-based investment company with a focus in the media and entertainment industry, has priced its debut dim sum for Rmb650 million.
The four-year bond was priced at 8.375% with a change-of-control put option — the option can be exercised at 101% if Peter Lam Kin Ngok, chairman of eSun’s controlling company Lai Sun Development (LSD), ceases to hold at least 30% of the voting stock of eSun or LSD.
The deal was supported by about 50 accounts with orders worth Rmb1 billion. Hong Kong and Singapore investors bought 78% and 22% respectively. Fund managers took 59% of the deal, private bank accounts subscribed to 15%, banks 13% and corporate investors 13%.
The issuer will use the proceeds to finance a joint venture project on the Hengqin Island in Zhuhai, and for general working capital.
It’s interesting to see a newcomer from a new industry and the whether the deal can test investor appetite for other issuers at the same size or in similar businesses, said a source familiar with the situation.
HSBC was sole bookrunner on the IFC green bond, and jointly with ANZ, DBS and UBS handling eSun’s dim sum deal.
