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Bond issuers target Dim Sum savings

[HONG KONG] Two past Panda bond issuers tapped the offshore renminbi market for the first time last week, adding to a growing list of borrowers who have been drawn to the Dim Sum market by attractive pricing.

Chinese car rental company CAR Inc, rated Ba3/BB (Moody's/S&P), raised 400 million yuan (S$82.57 million) from a maiden offering of Dim Sum bonds, about one year after it visited the Panda bond market.

On Tuesday, German carmaker Daimler (A2/A/A-), a veteran Panda issuer, launched a Rmb1billion debut offshore renminbi offering.

This came after three offshore-incorporated Chinese developers made the switch from Panda to Dim Sum bonds earlier: Jinmao Holdings Group, Shimao Property Holdings and Country Garden.

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Market participants pointed out that more Panda bond issuers might follow suit to lock in cheaper funding in the offshore renminbi market.

Meanwhile, investors have increasingly been looking onshore for the relative value of Panda bonds, particularly those of quality international names, a trend that bankers hope will help narrow pricing differences between the Dim Sum and Panda markets.

DELICATE TIMING Last week's Dim Sum deals were launched as the renminbi was strengthening after US President Donald Trump announced tariffs of up to US$60 billion on Chinese goods.

A banker on CAR Inc said a volatile debt market made things difficult for new issues in general, and particularly for Double B rated names, as investors lacked risk appetite. On the other hand, currency appreciation raised interest in renminbi assets, he said.

CAR Inc priced 6.50 per cent three-year non-call two Dim Sum notes at 98.80 to yield 6.95 per cent on Monday. CAR Inc's Dim Sum offering would have saved it 10-20 basis points compared to issuing US dollar notes, according to the banker.

The next day, Daimler sold three-year notes at par to yield 4.80 per cent, as the Chinese currency rose to a seven-week high against the dollar, a sign interpreted by the market as part of China's efforts to smooth trade tensions with the US.

Daimler's Dim Sum bonds were deep inside its Panda bond curve. Its 2021 5.60 per cent Panda bonds were bid at 5.58 per cent last Wednesday.

"4.80 per cent is the pricing Daimler deserves," said a Shanghai-based DCM banker away from the deal. "Panda bonds have become more expensive than Dim Sum notes particularly for quality international credits like Daimler." Daimler has been selling Panda bonds since March 2014 when it became the first foreign corporation to sell renminbi bonds in China, with a 500 million yuan private placement deal.

Over the past five years, it has raised 30 billion yuan from Panda bonds and still has a Panda bond quota of over 20 billion yuan.

YIELD CHASING A banker familiar with Daimler's Panda bond programme said opportunistic Dim Sum offerings could not replace Panda bonds for the carmaker, as a bigger and deeper onshore market caters better to its large funding needs in China in the long term.

He also said a reviving Dim Sum market was not necessarily bad news for Panda bonds, as interest has been growing from international investors towards the higher-yielding Panda bonds.

Some investors were even willing to make the effort to register with the National Association of Financial Market Institutional Investors as members, in order to be able to buy privately placed Panda bond issues by international names.

"A few offshore investors have intended to buy the Panda notes of Air Liquide and are going through the registration process," said a source familiar with Air Liquide's deal.

In early March, French industrial gases company Air Liquide, rated A3/A- (Moody's/S&P), privately placed 1.4 billion yuan three-year notes at par to yield 5.95 per cent and 800 million yuan five-year notes at par to yield 6.4 percent.

Offshore investors are also starting to move onshore.

Desmond Soon, head of investment management, Asia ex-Japan, at Western Asset Management, said WAM was doing more trades in the Chinese interbank bond market these days and working on moving more global funds into the onshore bond market.

WAM has reduced the proportion of dollar assets in its Asia bond fund by about 15 percent compared to this time last year.

REUTERS