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Capital Markets

Voracious investors grow picky amid CNH supply glut

As the volume of Chinese renminbi bonds issued in Hong Kong soars, previously starved investors are becoming fussier. While debt bankers talk up the market in public, in private the rush of synthetic, high-yield and even unrated deals worries some. Lawrence White reports.

DEBT CAPITAL MARKETS bankers in Hong Kong are now talking about the development of China’s offshore bonds (CNH), as being akin to the growth of the Eurobond market in the 1970s and 1980s. "This is the most exciting development in international capital markets in many years," says Rod Sykes, head of debt capital markets origination Asia-Pacific at HSBC. "It is the kind of transformational development that comes along once in a professional career, and what’s interesting is that while when the Eurobond markets started the early issuers were all highly rated, the CNH market already has a spectrum of products from highly rated frequent borrowers to high-yield issuers and even unrated corporates. The pace of the market’s development is much faster." The claims are supported by the data. The market for companies to issue in Chinese renminbi in Hong Kong began in 2007 with four deals worth a total of $1.32 billion. In 2008 and 2009 the total volume increased only slightly, before the Chinese authorities announced in 2010 the acceleration of the project to internationalize the currency that involved simultaneous development of the offshore bond market and a push to encourage companies worldwide to settle trade in renminbi.

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