Pacific Investment Management Co (PIMCO) sees a boom this year in issuance outside China by Chinese companies, driven by a record amount of Dim Sum bonds set to expire and a cash crunch in domestic markets.
Offshore yuan notes maturing this year, excluding certificates of deposits, will more than double to 91.1 billion yuan (US$15.1 billion), according to data compiled by Bloomberg.
The 3.95 percent average yield on Dim Sum bonds compares to a record 6.29 percent onshore and the 4.76 percent for dollar securities in Asia, according to Bank of America Merrill Lynch indexes that track yuan data since 2004.
“A lot of local and Dim Sum bonds are coming up for maturity so there will be a lot of refunding needs,” said Raja Mukherji, the Hong Kong-based head of Asian credit research at PIMCO, manager of the world’s biggest bond fund. “Given that onshore rates have been ticking up in China, corporates may choose to go to the offshore bond markets and extend their maturity.”
Dim Sum bond issuance last quarter surged to the highest in more than two years and the offshore yuan climbed to a record on Thursday in Hong Kong as Chinese Premier Li Keqiang (李克強) accelerates efforts to ease currency controls and boost convertibility.
By contrast, onshore yuan issuance fell to the lowest since the first three months of 2012 as the world’s second-largest economy experiences the worst cash crunch since June last year.
The offshore yuan advanced 0.13 percent to 6.0492 per US dollar as of 5:01pm on Thursday in Hong Kong, data compiled by Bloomberg show.
It earlier touched 6.0448, the strongest level in data going back to August 2010.
People’s Bank of China Deputy Governor Yi Gang (易綱) wrote in a article on Wednesday that the nation will expand the opening up of its foreign-exchange market and expand its participants.
US dollar borrowing costs for companies in Asia rose 89 basis points last year, after the US Federal Reserve said it would reduce its bond purchases.
Average yields on offshore yuan notes fell 7 basis points in the same period, Bank of America Merrill Lynch data showed.
“Supply of Dim Sum bonds will increase in 2014 because of the refinancing needs, cost advantage over onshore and renminbi internationalization,” said Raymond Gui, a Hong Kong-based senior portfolio manager at Income Partners Asset Management, which oversaw US$1.4 billion in assets as of June last year.
“US dollar yields have been climbing these days, so I don’t see much cost advantage of dollar funding over Dim Sum for Chinese names,” he said.
In Shanghai, the yuan closed 0.05 percent higher on Thursday at 6.0506 against the greenback, China Foreign Exchange Trade System prices showed.
It earlier reached 6.0500, the strongest level since the government unified the market and official exchange rates at the end of 1993.
The seven-day repurchase rate, a gauge of interbank funding availability, averaged 5.16 percent last month, the highest since June, according to a daily fixing rate announced by China’s National Interbank Funding Center.
Last month’s cash crunch in the interbank market, the worst since June, is forcing Chinese companies to offer bonds at the highest yields since the 1997 Asian financial crisis.
Evergreen Holdings Group Co, an “AA-” rated shipbuilder with 16.5 billion yuan of debt, sold one-year notes at 9.9 percent on Dec. 6, the highest among publicly issued onshore bonds since 1997, according to data compiled by Bloomberg.