Dim Sum Bond
Dim Sum Bonds refer to bonds denominated in Chinese yuan (RMB) but issued outside mainland China, typically in Hong Kong, by foreign entities such as international companies or financial institutions. These bonds cater to the demand for RMB-denominated assets from international investors and provide issuers with a means to raise funds in RMB. The development of the Dim Sum Bond market is indicative of the broader trend towards the internationalization of the Chinese currency.
Definition: Dim Sum bonds refer to bonds denominated in Chinese Renminbi (RMB) and issued in Hong Kong by entities outside of China, such as foreign companies or international financial institutions. These bonds were introduced to meet the demand of international investors for RMB assets and to provide issuers with a means to raise RMB funds. The development of the Dim Sum bond market reflects the progress of RMB internationalization.
Origin: The Dim Sum bond market originated in 2007 when the Chinese government began allowing RMB-denominated bonds to be issued in Hong Kong. The earliest issuers included Chinese policy banks and large state-owned enterprises. Over time, more international companies and financial institutions have participated in this market.
Categories and Characteristics: Dim Sum bonds can be categorized based on the type of issuer into government bonds, corporate bonds, and financial institution bonds.
- Government Bonds: Issued by the Chinese government or its subsidiaries, these bonds typically have high credit ratings and low risk.
- Corporate Bonds: Issued by entities outside of China, these bonds carry higher risk and return, suitable for investors with higher risk tolerance.
- Financial Institution Bonds: Issued by international financial institutions, these bonds have credit ratings and risks between government and corporate bonds.
Case Studies:
- HSBC: In 2010, HSBC became the first foreign bank to issue Dim Sum bonds in Hong Kong, with an issuance size of RMB 1 billion. This move helped HSBC raise RMB funds and strengthened its influence in the Asian market.
- McDonald's: In 2011, McDonald's became the first non-financial company to issue Dim Sum bonds in Hong Kong, with an issuance size of RMB 200 million. This issuance helped McDonald's expand its business in China and reduce its financing costs.
Common Questions:
- What are the risks of Dim Sum bonds? The risks of Dim Sum bonds mainly depend on the issuer's credit rating and market conditions. Government bonds have lower risk, while corporate bonds have higher risk.
- How to purchase Dim Sum bonds? Investors can purchase Dim Sum bonds through financial institutions in Hong Kong or international brokers.
- What are the returns on Dim Sum bonds? The yields on Dim Sum bonds are generally higher than similar USD bonds, but the specific returns depend on market interest rates and the issuer's credit status.
