Demand for new bond issues denominated in renminbi remains strong despite jitters in the credit markets. Possible contagion from Greece and Europe’s still far from resolved debt crisis has pushed yield spreads wider in both high-grade and high-yield dollar bond markets, but borrowers are still able to tap into Asia’s burgeoning offshore renminbi, or dim sum, market.
Clearly, too, better quality companies can raise cash at a competitive rate. Yesterday, Caterpillar managed to raise Rmb2.3 billion ($356 million) for two-year money at an interest rate well inside the 2% it had to pay on its first bond — a Rmb1 billion two-year deal managed by Goldman Sachs and issued in December last year.
The new issue, which was re-offered at par with a maturity date of July, 12, 2013, pays a much lower 1.35% coupon. According to people close to the deal, the yield was at the tight-end of initial price guidance of 1.35% to 1.425%. Sole bookrunner Standard Chartered, together with joint lead manager Citi and co-manager Goldman Sachs, attracted 80 separate orders worth more than Rmb3 billion.
It is the biggest issue so far by a multinational company in the dim sum market and comes shortly after a transaction in May by Hopewell Highway Infrastructure, the only other company to issue twice in the offshore renminbi market.
The deal was launched under Regulation-S only, so onshore US investors were unable to participate. By far the majority of bonds were placed with accounts based in Asia, with 62% allocated to Hong Kong investors and 18% sold to Singapore investors; the remaining 20% were distributed into Europe.
By investor-type, fund managers bought 54% of the issue, commercial banks took 24%, insurers 9%, and private banks and others bought 13%.
The issue, launched through Caterpillar Financial Services Corporation, is rated A2 by Moody’s and the equivalent single-A by Standard & Poor’s.
Caterpillar did not swap the proceeds of the deal into dollars, according to bankers, which perhaps explains the relatively large size of the issue compared to previous dim sum launches this year. The swap market can significantly reduce the cost of funds for borrowers, but is currently restricted to issues not much larger than Rmb1 billion.
A renminbi pilot scheme set up by the Peoples Bank of China allows overseas investors to use renminbi raised offshore to make direct investments in mainland China, subject to approvals on a case-by-case basis.
Renminbi deposits in the Hong Kong banking system reached Rmb548.8 billion in May, representing a 7.5% increase from Rmb510.7 billion in April, according to research by Goldman Sachs. These deposits account for around 9% of total system deposits in Hong Kong, but only 0.7% of the total deposits of Rmb76.7 trillion in mainland China. Total remittances of renminbi for cross-border trade settlements amounted to Rmb153.4 billion in May, 14.3% higher than in April.
But, as Goldman Sachs pointed out, although offshore deposits have been growing rapidly, “in addition to the lack of desire for companies to borrow in renminbi due to expectations of currency appreciation, another factor hindering the borrowing appetite for companies is simply the lack of avenues to make use of the renminbi funds to invest in onshore projects”.
The pilot scheme goes some way to addressing at least one of those problems.