Offshore renminbi issuers from Europe, Latin America and Russia say they would like to fundraise through the dim sum market again this year, but their plans may be hindered by the lack of a deep and liquid swap market.
Treasurers from Dutch bank ABN Amro, CAF Latin American Development Bank, Russian lender Gazprombank and Brazilian investment bank BTG Pactual said that they would all like to issue another dim sum bond later this year, ideally at a longer tenor than their previous deals.
“One of the reasons I am [in Hong Kong] again is to see whether there is still sufficient appetite for going back to the RMB market and some other avenues which we are currently investigating. So if we come back it will be after the summer,” said Erik Bosmans, group treasurer for ABN Amro, at Euromoney Conferences’ Global Offshore RMB Funding Forum in Hong Kong on May 8.
On August 29 last year, ABN Amro opened the dim sum market to Dutch issuers raising Rmb500 million (US$81.38 million) with a two-year bond that priced at par to yield 3.5%. Bookrunners were ABN Amro, Goldman Sachs, HSBC and Standard Chartered. Asked whether he would like to extend a curve, Bosmans said it was too early to tell.
“We haven’t decided yet because the renminbi market is still quite volatile, so if you want to build a curve, it’s difficult to do it in the current market circumstances. But because we have a long-term commitment to Asia we will continue to be a regular borrower in renminbi.”
Latin American issuers, too, are keen to return to the market. Both BTG Pactual and CAF believe there is strong demand from dim sum investors for South American names.
“One of the reasons [we have] an office here in Asia is to intermediate capital flows from this part of the world to Latin America. As part of our public issue we saw major institutions including the Taiwanese life insurance companies investing in BTG Pactual for the first time,” said William McGrath, CEO for Asia Pacific at the bank.
“Our impression is that there’s significant institutional interest in the region so we certainly will come back again... We would like to do a longer maturity, and target five and seven years as well,” he said.
BTG made its public debut in the offshore RMB bond market on March 19, raising Rmb1 billion. The ‘BBB-‘ rated bond was priced to yield 4.2%. BTG Pactual, Citic Securities and Standard Chartered led the deal.
After CAF issued its Rmb600 million 3.55% two-year debut dim sum bond in December, the bank was upgraded to ‘AA-‘ from ‘A+’. This caused its bond to rally by 70 basis points (bp) in the secondary market. Because of this, treasurer Aureliano Fernandez is keen to come back to the market.
“Definitely we want to return. There were investors at that time [of the debut bond] who could not participate in our deal because of strict guidance that required a minimum rating of ‘AA’. But we believe now we could have demand from a very high quality investor base, such as sovereign wealth funds and central banks. So we expect to come back to the market sooner rather than later,” he said. HSBC and Standard Chartered acted as joint bookrunners on the deal.
“Asian investors are very important for us. It’s one of the core investor bases that we see in all of our deals. For us we hope to come back with longer maturities, bigger sizes. We cannot be sure if it is this year or next year, but this market is very important,” said Anton Kirukhin, deputy head of debt management at the Russian lender.
Gazprombank closed a Rmb500 million three-year dim sum bond in February which priced at par to yield 4%. BNP Paribas and Gazprombank managed the deal.
However, all of the treasurers said their primary concern when issuing dim sum bonds was the shallow and illiquid swap market.
“If the swap markets do not open up properly and begin to deepen then the RMB market will not evolve into the mature market it is supposed to grow into,” said Bosmans.
Fernandez agreed: “The deal we did last year is a perfect case of the main limitations in the market. We had Rmb1.2 billion in demand but we could only do Rmb600 million because the swap was not that liquid. Also we could not go longer than three-years in tenor, as after that the swap becomes too expensive,” he said.
At the moment, in order to be competitive in swap market terms, a dim sum bond cannot be longer than five years. “But it needs to go to 10 years. I’m sure if any of us wanted to do a RMB bond in the 10-year space we could do it, but the swap market is not there,” said Fernandez.
Kirukhin pointed out that a deep swap market is particularly important due to the slow global growth in RMB trading volumes.“Swap lines are the main limitations if you look at the market as a funding source and you want to swap. But on the other hand if we look at this market as a source of CNH, the limitation there is that we don’t have enough client demand for CNH. China is one of the major trading partners for Russia but still, despite all the declarations from officials, the RMB is not used,” he said.