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Debt markets: Dim sum market is a side dish

What multinationals really want to know: when can we issue debt on the Chinese mainland?

Disregarding concerns about the rather patronizing name that has been thrust on Hong Kong’s renminbi-denominated bond market, the real problem with the introduction of the dim sum sector is that it has distracted attention from much more pressing concerns related to China’s debt markets. The option to issue offshore in renminbi had been restricted to Chinese companies until last year, when pioneering offerings by companies including McDonald’s and Caterpillar made the headlines. The former was the first multinational to take advantage of the new mechanism, via an Rmb200 million ($30 million) deal in August; Caterpillar Financial followed in November with an Rmb1 billion two-year note yielding 2%.

These deals have generated much excitement in Hong Kong, especially at the debt capital markets desks of foreign investment banks and among law firms with China expertise who foresee a bonanza in advisory fees. The appetite for renminbi-denominated paper in Hong Kong is certainly big among local investors with holdings of the mainland currency but who previously had no channel for investing these funds.

Yet there are reasons why these developments are not as exciting as they might appear. First, the deal sizes are still very small: Caterpillar’s deal is the largest so far, dwarfing the McDonald’s bond, yet still only raised the equivalent of about $151 million: a significant sum, but hardly a benchmark issue.

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