High-Yield Dim Sum Bonds Offer ‘Attractive’ Value, BOCI Says

Higher-yielding Dim Sum bonds are a good bet following a recent sell-off that was driven by concern some issuers will struggle to pay their debt, according to BOC International Holdings Ltd.

Yuan-denominated notes sold in Hong Kong by units of Intime Department Store Group Co., China Shanshui Cement Group Ltd. (691), Zhongsheng Group Holdings Ltd., OCT International Travel Service Co. and Hainan Airlines Co. are trading at deep discounts and offer “attractive risk-reward potential,” Steve Wang, BOC International’s head of fixed-income research, wrote in a report today. The bonds yielded 7.6 percent to 10.9 percent, according to BOC International, a unit of China’s fourth-largest bank.

“The recent global market turmoil has scaled out the once tightly congregated offshore yuan bonds, making the Dim Sum bond market now a more credit-sensitive and more risk-rewarding investment playing field,” wrote Wang, who is based in Hong Kong.

Dim Sum bonds have lost 3.4 percent since the end of August, pushing their average yield up 66 basis points, or 0.66 percentage point, to 5.46 percent as of yesterday, according to the BOCHK Offshore RMB Bond Index.

Yuan-denominated bonds issued by Chinese state-owned companies outperformed those sold by private enterprises during the market downturn as investors tend to stick with proven names during times of market stress, Wang said. About 85 percent of the outstanding Dim Sum bonds are unrated, he said.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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