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Dim Sum Bond

Dim Sum Bond

What Is a Dim Sum Bond?

"Dim sum bond' is a shoptalk term for bonds designated in Chinese renminbi and issued in Hong Kong. Dim sum bonds are appealing to foreign investors who want exposure to renminbi-designated assets, yet are restricted by China's capital controls from investing in domestic Chinese debt.

The term is derived from dim sum, a well known style of cooking in Hong Kong which includes serving various small luxuries.

Dim Sum Bonds Explained

International investors who are hoping to partake in the Chinese renminbi-designated (RMB) market might shift focus over to the dim sum bond market. Dim sum bonds are issued in Hong Kong. SAR by Chinese and foreign companies that like to stay away from the severe protections' laws set by regulators in the People's Republic of China (PRC). As such, dim sum bonds are appealing to investors keen on holding debt issued in yuan, yet can't do as such due to Chinese domestic debt regulations.

Multinational companies, even those without a presence in China, can issue dim sum bonds to professional investors without seeking endorsement from one or the other PRC or Hong Kong specialists. In the wake of giving such bonds, multinational issuers might utilize their proceeds uninhibitedly in Hong Kong without PRC regulatory endorsement. The proceeds may likewise be utilized to settle cross-border trades.

Since PRC endorsement isn't required, the dim sum bond market is interesting to investors seeking to expand their holdings. What's more, investors who bet on RMB appreciation can likewise utilize the dim sum bond market. This bond market likewise permits China to direct the amount of offshore yuan that flow once again into the central area.

Dim Sum Bonds versus Panda Bonds

The dim sum bond is often compared to panda bonds. Panda bonds rather are coastal renminbi-designated debt issued in China by overseas companies. The panda bond market is utilized as a capital-raising platform for foreign firms targeting domestic investors and consequently, domestic investors are the principal buyers of these bonds. On the other hand, the offshore dim sum bond market is overwhelmed by international investors.

The Dim Sum Bond Index

The Dim Sum Bond Index is a market capitalization weighted index that measures the performance of RMB-named dim sum bonds issued and settled outside Mainland China. Its main 10 issuers by market weight were PRC, Bank of China Ltd., Lenovo Group Ltd., China Development Bank Corp., Asian Development Bank, Beijing Enterprises Group, Beijing Enterprises Water Group, Export-Import Bank of China, China Construction Bank Corp., and International Finance Corp. This index is managed by Citigroup and rebalanced one time per month.

Features

  • Dim sum bonds are marketed to foreigners who wish to evade Chinese capital controls, yet have direct exposure to renminbi-named assets.
  • Multinational corporations might decide to issue these bonds to access regional financing from foreign creditors without limitations or severe oversight from Chinese specialists.
  • A dim sum bond alludes to a RMB-named bond issued in Hong Kong, which is a moderately autonomous region of China.