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DBS sets sights on China for debt capital markets blitz

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DBS Group Holdings, South-east Asia's largest lender, is expanding its fixed-income business in China in a bid to bring more first-time bond issuers to the offshore market.

Hong Kong

DBS Group Holdings, South-east Asia's largest lender, is expanding its fixed-income business in China in a bid to bring more first-time bond issuers to the offshore market.

The Singapore bank recently set up a debt capital market product and advisory team in China to focus on getting more local clients, Clifford Lee, head of fixed income at DBS Group, said in an interview.

It will be run by three bankers in Shanghai and Beijing led by Cleaven Yu, who was appointed head of its China fixed-income origination team in June, he said.

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"We expect that China's need for debt financing will only continue to grow, driven by factors such as the country's rising bank capital and infrastructure financing needs," said Mr Lee.

Chinese borrowers have been the dominant force for Asia's dollar bond issuance, making up about 60 per cent of the US$198 billion of notes sold so far this year, Bloomberg-compiled data showed.

DBS currently ranks 10th among the bond managers with 81 bonds, of which more than half are from Chinese companies.

DBS's move signals an effort to place the South-east Asian bank closer to Chinese firms as it seeks to attract more business from the world's second-biggest economy that's gradually opening up its financial markets.

Lenders from across the globe are also seeking to capitalise on China Inc's demand for foreign funding amid a deleveraging campaign that has kept local borrowing costs elevated.

"Being closer to the ground will further enhance our understanding of the local market, especially as regulations continue to develop," said Mr Lee. The landscape has also become "more conducive" for international banks to explore opportunities, he said.

Despite China being the linchpin of Asia's dollar bond market, corporate governance concerns have remained one of the big risks to investing in some of the nation's bonds.

Take the case of China Huiyuan Juice Group, a junk-rated drinks maker. Its dollar bonds slumped to record lows in April after the company disclosed that loans it gave to another firm with links to its chairman were in breach of stock exchange listing rules.

Then there was China Energy Reserve & Chemicals Group, previously seen as a solid bet. Investors learnt the hard way on May 25 that a pledge to repay a bond can be reversed within hours.

The company said it planned to repay its overdue US$350 million notes and a coupon on its 2019 bonds, sparking a rebound in its notes, only to say later that day it had insufficient funds in its trustee account to meet both the obligations. That sent the notes tumbling once again.

Providing more transparency to follow-up information disclosures by issuers is a priority for DBS, said Mr Lee.

"When we bring debut Chinese issuers that are much less known to non-Chinese investors, this has become extremely important amid the current volatile market where investors' confidence has somehow weakened," he said.

September is a critical month to signal market sentiment for the rest of the year, he said. If this month goes by smoothly, 2018's Asian dollar bond sale could potentially see a gentler decline of 10 per cent year-on-year, which is considered a good recovery from a challenging start to the year, he added. BLOOMBERG

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