IDBI Bank becomes first lender to tap China funds

MUMBAI/HONG KONG: India's IDBI Bank became the first lender to raise funds in offshore yuan in Hong Kong, signalling a new set of borrowers to enter the growing bond market.

From its sleepy origins as a tiny market for Chinese and Hong Kong companies in 2009, the so-called "dim sum" market or bonds sold by issuers in Hong Kong is known, has exploded to include multinational firms, large Chinese state-run enterprises and even casino companies.

While the steady increase in rupee interest rates has driven local companies to raise funds overseas, the yuan's attractiveness has received a boost after New Delhi added the Chinese currency as a external financing vehicle to the US dollar, Japanese yen, euro and the pound sterling in September .

India has set a $1 billion limit for borrowing in yuan within the $30 billion overseas borrowing limit for companies. The bond sold by the mid-sized Indian lender was eventually sold at a lower-than-projected yield of 4.5 percent, indicating demand from investors for yuan-linked assets remained intact despite a September selloff in Asian rates and FX.

The three-year deal was eventually priced at 4.5 percent, below an initial projection of 4.625 percent. The issue size was expanded to 650 million yuan ($101 million) from an expected 500 million yuan. The orderbook closed at around 900 million yuan with more than 20 accounts involved.

"IDBI Bank decided to access this market as an attractive funding cum diversification play as also to cultivate a new and fast developing investor class," Melwyn Rego, executive director at the bank told a media briefing. IDBI has a "Baa3" rating from Moody's and "BBB-" from S&P, both with stable outlooks, and similar ratings are expected for the new bonds.

The bank has already lined up assets, which will be funded from the proceeds of the bond said, Rego said. While the bank did not have any immediate plans to tap the market again, despite the good demand from investors, Rego said the bank has applied to Chinese banking authorities to open a representative office in Shanghai.

Many foreign corporate borrowers, including the World Bank, Volkswagen, McDonald's Corp and Caterpillar , have tapped the CNH market for funds for their Chinese operations, rather than borrowing in the dollar markets and converting into Chinese currency, which can be costlier.

Growth in the offshore renminbi, or yuan, bond market has been driven by a near-consensus market view that the yuan will rise, which has enabled top-rated issuers to pay less than 1 percent interest on their offerings. This year, dim sum bonds worth 140 billion yuan have been issued, compared with 40 billion yuan worth bonds sold during 2010.

Source: EconomicTimes