Bank of China Ltd is said to have sold 2.5 billion renminbi ($413 million) of Dim Sum bonds as Pacific Investment Management Co. forecasts a surge in offshore issuance by Chinese companies amid a domestic cash crunch.
The Chinese lender’s U.K. office issued yuan-denominated debt due January 2017 at a yield of 3.45 percent, according to a person familiar with the matter who asked not to be identified because they are not authorized to speak about it. Corporate Dim Sum bonds yield an average 4.4 percent, 39 basis points less than dollar securities sold by Asian companies, according to Bank of America Merrill Lynch indexes.
A record amount of maturing Dim Sum bonds -- debt issued outside of domestic China markets and denominated in offshore deliverable renminbi -- and tighter liquidity in domestic markets may drive a boom in offshore issuance, according to Pimco. Onshore issuers are paying more than ever, with three-year notes of AAA-rated companies yielding as much as 6.26 percent this month, according to Chinabond indexes.
Bank of China’s Dim Sum bond plan is among “positive signs of the continued development of London’s RMB market,” Mark Boleat, policy chairman for the City of London Corporation, said in an e-mailed statement late yesterday. Renminbi is another way to refer to the yuan. It follows the granting of a license this week to Ashmore Group Plc, a U.K. fund manager, to invest directly in China’s markets under the so-called RQFII program, Boleat said.
Offshore yuan notes maturing this year, excluding certificates of deposits, will exceed 91 billion yuan ($15 billion), more than double last year’s amount, according to data compiled by Bloomberg.
China approved an 80 billion yuan quota for investors in London to buy onshore assets under the Renminbi Qualified Foreign Institutional Investor scheme, Chancellor of the Exchequer George Osborne announced in October. The move was aimed at bolstering China’s efforts to internationalize its currency and helping London further its ambition to become Europe’s leading offshore yuan hub.
China’s seven-day repurchase rate, a gauge of funding availability in the banking system, climbed to 8.84 percent Dec. 23, the highest level since June 20, according to a daily fixing from the National Interbank Funding Center. The rate, which was at 4.02 percent today, touched a record 10.77 percent in June.
Dim Sum bond issuance last quarter surged to the highest in more than two years and the offshore yuan climbed to a record yesterday in Hong Kong as Premier Li Keqiang accelerates efforts to ease currency controls and boost convertibility. By contrast, onshore yuan issuance fell to the lowest since the first three months of 2012 as the world’s second-largest economy experiences the worst cash crunch since June.