CNH Tracker-Dim sum bond issuance set for active December quarter

By Michelle Chen and Umesh Desai

HONG KONG, Oct (KOSDAQ: 039200.KQ - news) 31 (Reuters) - Offshore yuan bond issuance is

set for a strong rebound in the last quarter of 2013 as China

accelerates its plans to offer the Chinese currency as an

alternative investment option for global investors beyond Hong

Kong.

Even as the supply and demand for these so-called dim sum

bonds have waxed and waned in recent months tracking

expectations of the yuan's trajectory, analysts are expecting a

heavy December quarter.

With a planned 10 billion yuan ($1.64 billion) jumbo debt

from China's Ministry of Finance (MOF), and soon-to-be announced

expansion of a pilot scheme that allows mainland issuers to tap

dim sum bonds, the primary market looks set to boom again.

The $80 billion dim sum market has been largely lacklustre

since the MOF sold its 13 billion yuan of bonds in June during

choppy market conditions in the wake of a cash squeeze in

China's onshore money market.

"The pipeline of CNH (KOSDAQ: 023460.KQ - news) bond issuance is now pushed to Q4,"

said Liu linan, an analyst at Deutsche Bank (LSE: 0H7D.L - news) , adding "we expect

funding activities to resume and we forecast Q4 net supply of 60

billion yuan."

If realised, that will be four times the total issues of the

third quarter when U.S. Federal Reserve tapering worries hurt

global credit market sentiment.

The dim sum market has outdone its Asian peers by eking out

three consecutive months of gains amid global market volatility.

Monthly returns tracked by HSBC climbed to 0.38 percent in

September, up from 0.21 percent a month earlier.

The rally is likely to continue given improved yuan

liquidity in the offshore market as the Chinese currency

gradually finds its foothold in Singapore, Taiwan, London and

other cities around the world.

"Many investors who have traditionally invested in dollar

bonds have now started looking at CNH space, so there is

increased demand from investors not just from Asia but also

other parts of the world as RQFII quotas have increased," said a

Hong Kong-based analyst with a European bank.

Beijing recently expanded the Renminbi Qualified Foreign

Institutional Investor programme to Singapore and London with 50

billion and 80 billion yuan quotas, respectively, permitting

them to enter China's onshore capital markets.

China Construction Bank on Tuesday also opened

its European headquarter in Luxembourg, becoming the third

Chinese bank to conduct business in the tiny Grand Duchy -

Europe's largest investment fund centre and a leading private

banking hub. [ID: nL5N0IJ20B]

Participation from more offshore yuan centres beyond Hong

Kong will no doubt boost demand in yuan assets and thus lift

international trade settled in yuan, which now accounts for

about 18 percent of China's total trade, compared with less than

1 percent in 2009 when the currency was first allowed to be used

in international trade.

RMB customer payments - a good proxy for trade settlement -

in Europe grew by 163 percent over the last year, much higher

than the 109 percent observed in Asia (excluding China and Hong

Kong) in the same period, according to SWIFT.

WEEK IN REVIEW:

* China Ping An Insurance tapped the dim sum market this

week with a 1.8 billion yuan five-year bond which was fixed at

4.75 percent, according to a term sheet seen by Reuters. The

bond attracted 113 investors with order books reaching 5.5

billion yuan.

* Yuan trade settlement amounted to 3.16 trillion yuan in

the first nine months in 2013, statistics from China's central

bank showed. Trade settled in the Chinese currency stood at

400.9 billion in September, up 14 percent from a month earlier.

* RMB remained the 12th most used payment currency of the

world, with an increased market share of 0.86 percent compared

to 0.84 percent in August, according to SWIFT. RMB payments

increased in value by 4.6 percent in September, whilst the

growth for all payments currencies was at 1.2 percent.

CHART OF THE WEEK:

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