People walk outside one of the branches of HSBC in Hong Kong March 4, 2013.Bobby Yip/Reuters
The Province of British Columbia is set to tighten ties with Asia through a new bond issuance priced in Chinese currency.
This capital raising venture makes B.C. the first foreign government to do a "dim sum" bond issue to dig into China's offshore debt market. The cute nickname refers to a debt offering by a foreign issuer that is denominated in Chinese renminbi, sometimes called the yuan. It will be listed in Luxembourg.
B.C. has been considering an issuance of this kind since late last year as a way to improve trade relations between the regions, and to access new sources of liquidity through investors in Asia who wouldn't necessarily buy Canadian dollar bonds.
"In the case of B.C., due to their strong ties with the Pacific Rim and the improving and increasing trade between Canada and China… it's an excellent way to overall improve the financial and economic ties," said Jason Henderson, head of global banking and markets and treasurer of HSBC Bank Canada. Mr. Henderson worked with the B.C. government on the deal.
The bond issue is $427-million in size and has a one year maturity date of Nov. 13, 2014. It is the largest bond issue of its type from outside Greater China, according to HSBC, which is the sole bookrunner on the offering. It will have a coupon of 2.25 per cent.
In December last year, B.C.'s provincial ministry of finance set out on a road show in Asia with stops in Beijing, Hong Kong and Singapore to feel out whether there would be buyers for the debt. On Friday, the purchasers were revealed to be 59 per cent Asian, 40 per cent American and 1 per cent European. Institutions and central banks made up over 60 per cent of the buyers.
The renminbi is becoming a more important currency for international trade, and there have been several major issuances in recent months.
Toyota Motor Finance (China) sent a renminbi bond worth $222-million out to market in mid-October. Other international companies looking to grow in China such as McDonald's Corp. and Caterpillar Inc. have also dipped into the market with dim sum bonds.
There were some indications that investors were falling out of love with these bonds in the second quarter of the year, when issuance dropped to its lowest point on record, Bloomberg data shows.
But signs of economic stability in China have encouraged investor optimism about the bonds, according to a recent Fitch Ratings Inc. article. Fitch attributed the drop in dim sum issuance to factors such as broader emerging-market risk aversion and higher onshore deposit rates in China.
The issue by B.C. is unique in that it is the biggest of its kind from beyond the Greater China, and is also the largest renminbi bond from a AAA-rated issuer.
Mr. Henderson said HSBC thought the timing was right for this deal after watching spreads through the year. It didn't make sense to wait longer, he said, because it gets harder to get deals done closer to the end of the year.
"The renminbi and the Chinese market isn't going anywhere – it is going to get larger and larger over time. So as an investor base and as a source of global liquidity, I think everybody will pay attention to it on an ongoing basis," Mr. Henderson said.