Dim Sum Bond What is a dim sum bond? A dim sum bond is a bond denominated in Chinese renminbi (RMB) and issued in Hong Kong. The name refers to the Hong Kong cuisine—small, varied dishes—reflecting the market’s role as an offshore venue for RMB-denominated debt. How dim sum bonds work
* Issuance: Dim sum bonds are issued in Hong Kong (Special Administrative Region) by Chinese and foreign companies seeking to tap RMB funding outside mainland China.
* Investor base: They appeal to international investors who want exposure to RMB assets but face restrictions under China’s onshore capital controls.
* Use of proceeds: Multinational issuers can typically raise capital in Hong Kong and use proceeds there or for cross-border transactions without requiring mainland China approval.
* Market role: The offshore market provides a channel for diversification, RMB-denominated investment, and for investors speculating on RMB appreciation. It also lets China control flows of offshore yuan back into the mainland.
Who issues and buys them
* Issuers: Both Chinese and foreign companies, including multinational firms that may not have a mainland presence.
* Buyers: Predominantly international and professional investors in the offshore market.
Dim sum bonds vs. panda bonds
* Dim sum bonds: RMB-denominated debt issued offshore (Hong Kong) and mainly sold to international investors.
* Panda bonds: Onshore RMB debt issued in mainland China by foreign issuers, primarily aimed at domestic Chinese investors.
The Dim Sum Bond Index A market-capitalization weighted index (managed by Citigroup) tracks the performance of RMB bonds issued outside mainland China. The index is rebalanced monthly. Major issuers by market weight can include sovereign entities, major banks (e.g., Bank of China Ltd.), and large corporates (e.g., Lenovo Group Ltd.). Considerations and risks
* Currency risk: Exposure to RMB movements can produce gains or losses for foreign-currency investors.
* Liquidity: Offshore RMB bond liquidity can vary by issuer and market conditions.
* Regulatory differences: Offshore issuance avoids some mainland regulatory constraints, but investors should understand Hong Kong and offshore market rules.
* Credit risk: As with any bond, assess issuer creditworthiness.
Key takeaways
* Dim sum bonds are RMB-denominated bonds issued in Hong Kong, offering offshore access to RMB assets.
* They attract international investors restricted by mainland capital controls and allow issuers flexibility in fund usage.
* Panda bonds are the onshore counterpart, aimed at domestic Chinese investors.
* The Dim Sum Bond Index tracks the offshore RMB bond market and is rebalanced monthly.
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