Bruce Lee Film Studio Said to Set Dim Sum Record: China Credit

Orange Sky Golden Harvest Entertainment (Holdings) Ltd., the film studio that made Bruce Lee famous, is offering a record yield to sell yuan bonds in Hong Kong after its stocks fell 48 percent in the past year.

The film distributor and cinema operator, which aims to have 600 movie screens across China by 2012, is marketing 300 million yuan ($46 million) of three-year bonds to yield 6.25 percent to 6.75 percent, according to three people familiar with the matter, who asked not to be identified before a public announcement. The company would be the third borrower without a rating and the second debut bond issuer to sell so-called dim sum bonds in 2011.

“It’s unusual for a market in its early days to be so accommodating to new names,” Jeremy Amias, co-founder of fixed- income brokerage and advisory firm Amias Berman & Co., said in a telephone interview from Hong Kong. “There’s a confusion between credit and currency appreciation and these types of companies require hard-core credit assessment.”

Yuan bonds in Hong Kong pay yields that are on average 261 basis points, or 2.61 percentage points, less than yields on similar debt in Shanghai, as investors outside China seek to profit from appreciation in the nation’s currency. Borrowers sold 7.7 billion yuan of bonds in Hong Kong last month, following a record 35.7 billion yuan of sales in 2010 that was almost a 10-fold increase from 2008, according to data compiled by Bloomberg.

Local Demand

Golden Harvest, whose shares have fallen 48 percent to 56 Hong Kong cents over the past 12 months, plans to sell bonds that would yield less than the 7.27 percent average rate on debt sold by non-investment grade companies in Asia, based on JPMorgan Chase & Co.’s Asia Credit Index. Dim sum notes pay an average yield of 1.44 percent, compared with 4.05 percent for yuan debt in Shanghai, according to data from the Hong Kong- based Treasury Markets Association and Bank of America Corp.’s China Quasi-Government Index.

“I’m sure local accounts would be more familiar with the name and comfortable with the credit risk,” said Shyam Saraf, a Singapore-based credit analyst at BCP Securities Asia Ltd. “Investors in the U.S. and Europe who don’t know the credit at all would be really wary of investing.”

Yuan deposits in Hong Kong rose fivefold last year to a record 314.9 billion yuan as the city’s residents, who are restricted from investing directly in mainland China, bet on a currency that reached a 17-year high last month. The yuan may appreciate 4.5 percent by the end of this year, according to the median forecast of 25 analysts surveyed by Bloomberg. Dim sum bonds have returned 0.94 percent this year, according to the Bank of China Hong Kong offshore yuan bond index.

Yuan Gains

The yuan is forecast to gain the most this year among the currencies of the so-called BRIC emerging economies. India’s rupee is expected to gain 3.9 percent, while Brazil’s real and Russia’s ruble are forecast to fall 2.4 percent and 3.7 percent, according to median forecasts in Bloomberg surveys.

China’s currency has appreciated 3.7 percent since a two- year peg was relaxed in June. It strengthened 0.1 percent to 6.5863 per dollar today as of 12:21 p.m. in Shanghai, according to the China Foreign Exchange Trade System. Financial markets on the mainland opened yesterday after a weeklong break for the Lunar New Year holiday.

Orange Sky Golden Harvest, which changed its name from Golden Harvest in 2009 after businessman Wu Kebo became the largest shareholder, operates 33 cinema multiplexes with a total of 250 screens across China, Hong Kong, Taiwan and Singapore, according to information on its website.

‘The Big Boss’

Founded by Raymond Chow, Leonard Ho Koon-cheung and Leung Fung in 1970, the studio made films such as “Teenage Mutant Ninja Turtles” in 1990 and 2001’s “The Accidental Spy,” starring Jackie Chan, according to the company’s website. This year marks the 40th anniversary of the first film martial arts star Bruce Lee made with Golden Harvest, “The Big Boss,” according to the official Bruce Lee website. The company’s shares have fallen 71 percent from HK$1.925 since its Hong Kong listing in November 1994.

Lions Gate Entertainment Corp., a Santa Monica, California- based movie producer and distributor whose debt is rated B1 by Moody’s Investors Service, sold $236 million of 10.25 percent November 2016 notes, data compiled by Bloomberg show. South Korean cinema operator CJ CGV Co.’s 30 billion won ($27 million) of February 2012 notes, which are domestically rated, pay a coupon of 6.38 percent, the data show.

The group “has entered a stage of rapid business development and we are actively seeking ways in diversifying our financing channels,” said Emily Tsang, a spokeswoman at Golden Harvest, in an e-mailed response to questions. “A renminbi bond issue is one of them,” she said, referring to the yuan by its alternative name.

Sovereign Risk

Five-year credit-default swap on China’s bonds have risen 7.5 basis points this year through Feb. 9 as China increased the benchmark one-year lending rate for the third time in four months on Feb. 8 to help curb inflation. The contracts rose one basis point to 75.5 yesterday, CMA prices in New York show.

Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.

The yield on China’s 2.68 percent government bond due in November 2013 rose six basis points to 3.388 percent yesterday from 3.331 percent on Feb. 1, Chinabond prices show. China’s interest-rate swaps jumped the most in two years yesterday after the central bank boosted borrowing costs. One-year interest-rate swaps, or the fixed cost needed to receive the floating seven- day repurchase rate, fell four basis points to 3.88 percent today as of 12:24 p.m. in Shanghai, according to data compiled by Bloomberg.

Synthetic Bonds

Yuan-denominated debt that is sold outside of China and settled in U.S. dollars, so-called synthetic yuan bonds, still pay higher yields than conventional notes in Hong Kong, according to data compiled by Bloomberg. Evergrande Real Estate Group Ltd., China’s biggest developer by sales, sold 5.55 billion yuan of three-year securities priced to yield 7.5 percent last month, Bloomberg data show.

Luxury department store operator PCD Stores Group Ltd., also unrated, last month sold 750 million yuan of February 2014 notes priced to yield 5.25 percent, which set the previous highest yield for the dim sum bond market, according to data compiled by Bloomberg. Unrated Yuen Foong Yu Paper Manufacturing Co., Taiwan’s biggest maker of paper and pulp, issued 300 million yuan of three-year bonds priced to yield 3.1 percent, the data show.

“Borrowers are being very opportunistic in trying to tap a market where there is a limited supply of investible assets,” said Arthur Lau, a Hong Kong-based fixed-income fund manager at JPMorgan Asset Management, which oversees $1.3 trillion.

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net; Shelley Smith in Hong Kong at ssmith118@bloomberg.net

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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