While Asia’s dollar bond market is off to a flying start in 2012, dim sum deals have so far been thin on the ground. According to Dealogic data, the total dim sum issuance year-to-date is equivalent to $1.1 billion, slightly up on the $801 million at this time last year — but still a far cry from the $16.9 billion seen in the dollar market this year, which is nearly double last year.
Yields in the dim sum market have risen this year and most of the companies that have tapped the market during the past two weeks are those that actually need renminbi to grow their business in China or for trade settlement purposes.
The latest addition to the dim sum market is Lanxess, a Frankfurt-listed company, which priced a Rmb500 million ($79 million) three-year offshore renminbi bond late Wednesday night. Lanxess was founded in 2004 when Bayer AG spun off its chemical operations and parts of its polymer businesses.
About a quarter of Lanxess’s business comes from Asia and it operates in 10 cities in China. It has renminbi funding needs and the company has approval to repatriate the proceeds back to China.
The price guidance was in the low-to-mid 4% area and the size was capped at Rmb500 million. The coupon was fixed at 3.95% and the notes reoffered at 99.302 to yield 4.2%. The deal attracted an order book of Rmb1 billion from more than 40 accounts.
One banker away from the deal suggested that Lanxess “didn't seem to be a name that Asian investors would be familiar with”. This was evident in the book — with European investors taking up the lion’s share (44%), Singapore investors 40% and Hong Kong investors 16%. Fund managers were allocated 50%, banks 29% and private banks 21%. The bonds traded at 99.8 on Thursday morning, above the reoffer.
Bank of America Merrill Lynch, Deutsche Bank and Standard Chartered were joint bookrunners. Most of the dim sum issuance this year has been high-grade names, but Lanxess is on the cusp of investment grade — rated Baa2 by Moody’s and BBB by S&P and Fitch.
Lanxess’s dim sum priced 20bp wider than Korean retailer Lotte Shopping’s Rmb750 million ($119 million) three-year bonds, which offered investors a yield of 4% when it came to market last week. Notably, the yield Lotte paid for its dim sum bond was more than what Lotte’s outstanding dollar bonds of similar maturity are yielding — indicating that Lotte was willing to pay a premium to raise offshore renminbi.
In contrast to Lanxess, Asian investors were clearly familiar with the Lotte name and as a result accounted for the biggest chunk of the allocations (84%) with European investors taking the rest. Deutsche Bank and HSBC were joint bookrunners.
Also last week, America Movil, which is owned by Mexican billionaire Carlos Slim, priced a Rmb1 billion ($158 million) dim sum bond at a yield of 3.5% through sole bookrunner HSBC. The deal was the first SEC-registered global bond in the dim sum market, and was significant as onshore US buyers could participate for the first time and accounted for 26% of the deal. America Movil is rated A2 by Moody’s/A- by S&P and A by Fitch.
However, America Movil was unique as it already had an SEC programme in place and only needed to add the dim sum currency to its documents. As many issuers do not have SEC programmes in place, and it would be too costly to set one up, the investor base for dim sum bonds is likely to stay in Asia and Europe. For now.
