Fri Mar 15, 2013 6:22am EDT
* Offshore renminbi sees record high-yield issuance
* Rates at lowest ever make market attractive
* Investors play the currency and get the coupon
By Nethelie Wong
March 15 (IFR) - Companies from Moscow to New York drove new high-yield bond issues in the overseas renminbi market to a record last week with three new issues totalling at least Rmb3.25bn (US$516m).
The offerings, including one that was set to price late on Friday, attracted orders of over Rmb14bn even as mounting demand for sub-investment grade Dim Sum paper pushed yields to a record low.
That trend is expected to continue, with one head of debt capital markets in Hong Kong already predicting that April will be a record month for high-yield and unrated fundraisings in the offshore renminbi, or CNH, market.
Investors are keen on the paper, too.
"There has been a lot of issuance (of high-yield in dollars), but I like the levels being offered in the CNH space," said one hedge fund manager in Singapore.
Another asset manager in Singapore said that investors liked the fact that, unlike dollar bonds, Dim Sum paper cannot be easily shorted. So if they like the credit, the offshore renminbi bonds are a safer bet. "Some guys like the currency exposure as well," he added.
Issuers are also happy. On a comparative basis, some of the transactions priced this week provided lower funding costs for junk-rated issuers than they would get in the dollar market.
Financial officers at companies like to compare funding costs in different markets by checking what spread over Libor they achieved. And from that standpoint, the levels are very attractive.
CHEAPER THAN DOLLARS
Chinese property developer Gemdale, for example, sold a Rmb2bn five-year bond last Thursday at 5.625%. That would have swapped to US dollars rates at just 375bp over Libor, far below where it could have raised funds in that market.
As a comparison, Country Garden, far larger but with a similar rating to Gemdale at Ba3/BB-, has US dollar bonds due 2018 yielding 5% in secondary. That yield swaps into 400bp over Libor.
Gemdale's trajectory also helps explain why investors are so keen on Dim Sum high-yield.
The company last year raised Rmb1.2bn from a three-year Reg S bond at 9.15%. Those bonds performed very well in the secondary market and were being quoted last week at a yield 4.939%/4.405%.
The gains were not limited to Gemdale.
The Citigroup High-Yield Dim Sum index reached an all-time high of 110 last week, marking an average yield of 4.58%, the index's lowest ever. The return on the index in the past 12 months was a respectable 11.4%.
RECORD ISSUANCE AHEAD
With yields so low and investors still hungry, more issuance is a natural consequence - now wonder last week was the most active ever for the asset class.
On March 13, Russian Standard Bank more than doubled the total issue size of its 8% due February 14 2015 paper to Rmb1.25bn with a well-received Rmb750m tap. The reopening came only a month after the original deal, but saved an impressive 73bp in funding costs for the lender.
Come Friday, Nasdaq-listed cloud computing provider 21Vianet Group was again underlining the depth of demand with the first Dim Sum bond from China's internet sector.
Indicated at 8%, the unrated deal had received orders of Rmb3.75bn by Friday afternoon. The amount demanded was more than the firm's reported assets of Rmb2.97bn as of September 30 2012.
"If the deal goes well, it will open doors for other listed Chinese small-cap companies and start a new sector for the CNH market," said a DCM banker.
It also will offer further proof that the offshore renminbi offers a good funding avenue for junk-rated companies.
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