Dim sum flurry as investors show appetite for bonds

Borrowers completed a flurry of dim sum bonds last week, including Agricultural Bank of China, China Construction Bank, Beijing Capital Land and Volkswagen, breaking a pause in dim sum issuance.

With diminished expectations of renminbi appreciation, the dim sum market has had a slower year compared to the dollar market, but the latest burst of activity suggests that dim sum investors still have appetite for new issues as the year winds down.

“October was probably the quietest month for dim sums we have seen in two years,” said one banker. “I think it is pure coincidence. The basis swap was in the favour of borrowers in October, but we didn’t see many deals. Some of these deals just took some time to get their documents in order.”

Another banker speculated that with the new Chinese leadership in place, some of the Chinese state-owned enterprises want to show that they are doing something.

Chinese property developer Beijing Capital Land’s Rmb2 billion ($321 million) three-year dim sum bond stood out for the massive order book it attracted. The deal, which closed late last week, attracted Rmb20 billion ($3 billion) of orders — one of the biggest for a corporate borrower, underscoring investors’ appetite for yield.

The company is speculative grade, rated Ba2/BB+. The bonds are rated one notch lower by Moody’s and on par with the issuer rating by Fitch. The issuer was Central Plaza Development and there is a keepwell agreement with Beijing Capital Land, and a letter of support from parent Beijing Capital Group. The structure was similar to that used by Gemdale for its dim sum bond earlier this year.

Beijing Capital Land is 47.2% held by Beijing Capital Group and receives capital support from China Development Bank and Government of Singapore Investment Corp.

The coupon of 7.6% was on the juicy side. According to one banker away from the deal, the bonds went on to rally to 102.75/103 in secondary — attracting criticism that too much was left on the table. “It was a good deal and attracted a lot of demand but I think it priced on the cheap side,” said a rival banker.

Hong Kong investors were allocated 65%, Singapore investors 29% and other investors 6%. Private banks were allocated 44%, fund managers 42%, banks 4%, corporate 3% and other investors 7%. HSBC was the sole bookrunner.

Meanwhile, German carmaker Volkswagen also closed its Rmb1 billion ($160 million) five-year dim sum bond late last week, after attracting more than Rmb5 billion of orders. The coupon was 3.75% and the bonds were rated A3/A-. CCB International, Commerzbank and HSBC were joint bookrunners.

The deal was heavily allocated to Taiwanese investors, which took 46%. Hong Kong investors were allocated 27%, Singapore investors 10% and European investors 17%. Insurance funds were allocated 45%, fund managers 39%, private banks 10% and banks 6%. Volkswagen has operations in mainland China and will be remitting the proceeds onshore.

On Wednesday, China Construction Bank also closed a Rmb1 billion dim sum bond that was listed on the London Stock Exchange. The three-year bonds priced to yield 3.2%. The deal follows in the footsteps of other London-listed bonds from HSBC and ANZ. China Construction Bank, BNP Paribas, HSBC, ICBC (Asia) were joint global co-ordinators and bookrunners. Bank of Communications (Hong Kong), CICC and Standard Chartered were joint bookrunners.