Chexim rides on dim sum bond fever

The Export-Import Bank of China captures robust investor demand with its third offshore renminbi bond. The $700 million issue tightens sharply in the secondary market, which is testament to the ferocious appetite for so-called dim sum bonds.

The Export-Import Bank of China (Chexim) has priced a dual-tranche Rmb5 billion ($700 million) “dim sum” bond amid resounding demand from institutional investors. The bond offered two tranches, one to retail investors and the other to institutional accounts.

The Rmb4 billion three-year retail tranche offered a coupon of 2.65%. The retail offer closed on November 26. Meanwhile the Rmb1 billion two-year institutional tranche offered a coupon of 1.95%. The latter was massively subscribed, gathering an order book of Rmb53 billion as institutional investors chased the limited offering.

Reflecting this, the two-year bonds tightened sharply yesterday evening and were bid at 1.44%, a hefty 51bp inside the issue yield. However, the bonds are not very liquid as investors have mostly bought to hold.

“The bonds have all tightened substantially after the ministry of finance’s auction,” said one banker. Yesterday, China’s ministry of finance announced its second sovereign bond in Hong Kong -- an Rmb8 billion offering -- which was also very well received by institutional investors.

The ministry of finance’s Rmb5 billion institutional tranche comprised three-, five- and 10-year tenors with coupons of 1%, 1.8% and 2.48% respectively. The total demand amounted to Rmb50 billion, or about 10 times the issue size. Bank of Communications (Hong Kong branch) was the issuing agent for the institutional tranche.

Other recent renminbi-denominated offshore bonds have also been chased in the secondary market. For instance, Sinotruk (Hong Kong)'s three-year bonds, which priced in October at 2.95% are now trading at yields of 2.25% to 2.30%.

“Renminbi bonds are very well bid. Many are not on offer at all. Many newly formed funds specialising in renminbi bonds must have bought in chunks,” said one Singapore-based investor.

Chexim's institutional tranche saw a strong take up from Asian investors, which accounted for 88% of the order book. This demand came mainly from banks, corporates and private banks in Hong Kong and Singapore. Europe took up the remaining 12%. By investor type, 50% of the demand came from banks, 19% from private banks and 31% from fund managers.

The Reg-S bonds are settled in renminbi. Bank of China (Hong Kong), HSBC and Standard Chartered were joint bookrunners for the retail tranche. The former two were also joint bookrunners for the institutional tranche, while Standard Chartered Bank was a lead manager (no books).

The size of Chexim’s latest fundraising is merely a drop in the ocean compared with its total outstanding onshore renminbi bonds, which are said to total about Rmb438 billion ($65 billion). Sources close to the deal said that the policy bank, which is wholly owned by the Chinese government, issued the bonds to further develop the nascent market.

“The decision to issue an offshore renminbi bond was less about funding and more about helping to develop the renminbi offshore market; and also to offer retail investors the chance to participate,” said one banker.

Chexim has the same international credit ratings as China’s sovereign ratings.

Chexim’s cost of funding has come down since its first offshore renminbi bond issue back in August 2007. At that time, it offered a dual-tranche bond which paid a coupon of 3.05% for the two-year tranche and 3.2% for the three-year tranche. Subsequently, in September 2008, it offered a three-year bond with a coupon of 3.4%.

China’s Ministry of Finance will start taking orders for the two-year retail tranche of its offshore bond next week. The Rmb3 billion offering will pay a coupon of 1.6% and the subscription period will run from December 7 to December 14.

Bank of China (Hong Kong), Bank of Communications (Hong Kong branch) and Industrial and Commercial Bank of China (Asia) are joint bookrunners for the retail tranche.

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