China Financial Services breaks dim sum lull

The first deal after Chinese New Year indicates a difficult start for the offshore renminbi bond market in the year of the goat.

China Financial Services has raised Rmb300 million ($49 million) through its first renminbi-denominated bond in Hong Kong.

CFS, a Hong Kong-listed financial service provider in northern China for small and medium-sized enterprises, priced the three-year note at a yield of 6.75%, the same as the guidance.

The deal is the first dim sum insurance since the Chinese New Year and will test the renminbi bond market as issuance has been quiet.

The deal attracted strong interest, with investors liking the company’s business. Fund managers bought 30% of the notes, while private banks, banks and other investors took 39%, 26% and 5%, respectively.

Geographically, Asian orders accounted for 98% and European orders 2%.

The proceeds will be used for developing the company’s lending business and other general corporate purposes. JP Morgan was sole bookrunner on the deal.

The dim sum market may now see other issuers following CFS.

Commonwealth Bank of Australia is looking to meet investors in Hong Kong and Singapore next week for its Reg-S Basel III-compliant renminbi bond.

Meanwhile, Hailiang Mingrui, a Chinese copper manufacturer, is also planning to issue a renminbi bond in Hong Kong this year. BoCom International, HSBC and ICBC (Asia) are working on the transaction.

That said, only 30 companies issued renminbi bonds or certificates of deposit in January, compared to 72 in the same month last year, according to Bloomberg data.

China’s yuan depreciated 0.75% in January, a third consecutive monthly decline, which further demonstrates how the economy is slowing.

“The major concern for dim sum investors is the currency’s depreciation,” said a DCM banker at a global bank. “Fund managers now tend to keep US dollar rather than renminbi in their hand to avoid risks.”

Investors’ perception adds further pressure to renminbi liquidity in the offshore market.

Data shows the three-year offshore renminbi cross-currency swap, which investors pay to obtain yuan cash flows for dollars, rose to 4.2% on Monday, the highest in at least four years. It was more than 2% in the second-half of last year.

Also, more offshore renminbi is flowing into the mainland under the Shanghai-Hong Kong Stock Connect Scheme and other facilities launched by China’s government to help investors take renminbi back to China.

Analysts estimate that the issuance volume of dim sum bonds this year will decrease. HSBC said the size will be about 10% lower than last year while Standard Chartered expects an 11% to 15% fall.

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