Companies representing 21 countries have issued offshore renminbi bonds since the market started in 2010. Countries which have large trading relationships feature highly including US, Europe, Japan and Asean, according to Dealogic.
However, so far only one dim sum borrower has come from Australia despite 25% of the country’s exports going to China, mainly in the form of commodities. In December 2010, ANZ issued a Rmb200 million two-year deal via ANZ and HSBC.
The lack Australian dim sum borrowers is attributed to the domestic focus on many of the country’s corporates and their infrequent access to the debt capital markets.
“If you look at Australian corporates, there are not really more than 20 names in the market and many are quite domestic in nature. In addition not many of them have bond issuance programmes and to do a small size trade like a dim sum is it is more efficient to do it off a programme,” said a head of debt capital markets, Australia.
There is a sense though that this could change over the next few years with Australian borrowers becoming more frequent issuers, led by the country’s commodity giants. The majority of commodities contracts are denominated in US dollars but as the world’s biggest consumer of natural resources, China could look to increase the influence of the renminbi by insisting commodity transactions are carried out in RMB.
“As renminbi grows as a trade settlement currency, China may prefer or may insist that commodity contracts are denominated in renminbi. Once that starts happening that triggers RMB revenues, which leads to the need for renminbi swaps and that’s the part where funding in renminbi makes sense,” said the head of debt capital markets, Australia.
“At the moment there are issuer constraints in terms of accessing the market. You will only come to the market if the swap makes sense or if they have some special needs in the currency. Most commodities companies tend to have enough cash and no natural need for renminbi,”
The shift of commodity payments into renminbi has already been pre-empted by some of the region’s exchanges. The London Metals Exchange (LME) has said is considering settling metals contract in the China currency. This development could now accelerate as the Hong Kong Exchange & Clearing as out in a bid for the LME with the former already announcing its intention to introduce RMB-denominated commodity futures this year.
Meanwhile, Hong Kong Mercantile Exchange is planning to offers gold and copper future contracts in renminbi in 2012.
However, even if Australian miners develop a need for renminbi funding, the constraints of the dim sum market could still stymie issuance.
“There would be a couple of issues for miners. First there’s the issue of how much they can get from the dim sum market as its still small,” said a Hong Kong-based head of debt capital markets. “Secondly there’s an issue about whether they can match future cash flows, otherwise they will be exposed to currency risk, most commodity contracts are still in US dollars so they will need a hedge. Also funding in US dollars is pretty cheap these days . Finally, miners will want to get longer tenor dim sum bonds.”
Nonetheless, the head of debt capital markets Australia remains bullish about the prospects.
“If you are not swapping the proceeds it makes it easier to get longer funding so I would expect them to come in the five year maturity and then it becomes about getting the right size,” he said. “Beyond that, if you factor in greater RMB deregulation and you see the dim sum market open up for 10-15 years tenors or issuers are given access to the onshore renminbi market there could be real momentum.”