First offshore dim sum bond makes its debut

The first dim sum bond in the offshore market was well-received on Thursday, demonstrating a pickup in sentiment for mainland companies in the yuan market outside China.

Peking University Founder Group Corp, the Beijing-based company with 70 percent shares held by Peking University, raised 1.2 billion yuan ($199.7 million) from its first yuan-denominated bond issued in offshore yuan market on Thursday, through Founder Information (Hong Kong) Ltd, one of its subsidiaries.

The three-year unrated bond was priced at face value with a coupon at 5.875 percent per annum. The sole book runner, DBS Bank Ltd, saw the offering overbooked at 4.6 billion yuan from 76 accounts.

Of the allocation, 57 percent came from Hong Kong, followed by 42 percent from Singapore.

The bond, set to list on the Hong Kong Stock Exchange on Jan 16, will mature in 2017.

"The deal was very well-received and traded on its debut in the secondary market," said Clifford Lee, managing director and head of fixed income, treasury and markets at DBS Bank, adding that the offering settled at 200 million yuan above the original plan because of overwhelming subscription.

"The market is very open and receptive to new names. For a first-time unrated issuer to get a deal done with fair audience and assessment, you must have a firm market," said Lee in a conference call.

"This is a good start for the offshore RMB market in 2014. It was not the case at the beginning of 2013, let alone during the uncertainty of 2012."

In terms of market sentiment, Lee said the fundamental has improved since the end of last year based on the steady expectation of the appreciation of the currency.

"This year, we see more investors with larger amounts of RMB inflows to their funds, which enables deeper participation. Interest is coming back in a more sustainable and consistent manner," Lee added.

"The prime concern for investors now is credit acceptance, before looking into yield," he said. "This is still a market where you can increase the yield to get the deal done."

Meanwhile, Standard Chartered Bank was also bullish on the dim sum bond market in the near term.

"We expect most issues, particularly certificates of deposit, to be easily refinanced," the bank said in an offshore RMB report published on Jan 7.

"The historically wide gap of interest rates across the border should incentivize Chinese entities to seek cheaper funding in the offshore market," it said.

According to the report, by the end of the first quarter, 86 billion yuan of dim sum bonds will come due.

That will be followed by the maturity of another predicted 98 billion yuan worth of bonds.

Thanks to the seasonal effect and the resumption of IPO activities after being frozen for more than a year, liquidity is tight in the money market on the mainland.

But conditions outside are improving. "Ultra-loose liquidity conditions may also be sustained for slightly longer given strong renminbi appreciation expectations," the report said.