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Dim Sum Bonds: The Offshore Renminbi (RMB)-Denominated Bonds


Praise for Dim Sum Bonds

"A good 3-D view on the Dim Sum bond market."
--EDWIN CHAN, Managing Director, Head of Asian Credit Research, UBS

"This book is a very useful reference for those international investors who consider investing in the offshore RMB bond market."
--JINGXIN DENG, Director, Lead Portfolio Manager of Global Credit Investment, China Investment Corporation, Hong Kong

"This timely and well-researched reference book written by both market practitioner and academic researchers is a must-read."
--THOMAS KWAN, Head of Fixed Income, Harvest Global Investments Limited, Hong Kong

"A very useful and insightful reference to anyone who wants to comprehend the profound implication of the development of the dim sum bond market and what it means to the global capital market in the future."
--ARTHUR LAU, Managing Director, Head of Fixed Income Asia ex Japan and Co-Portfolio Manager, Emerging Markets, PineBridge Investments Asia Ltd., Hong Kong

"This book is essential reading for all existing and intended RMB debt market participants in Hong Kong, the biggest RMB off-shore centre."
--PHILIP LI, Managing Director, China Chengxin (Asia Pacific) Credit Ratings Company Limited

"This timely book will help investors, bankers, regulators and academics better understand China's currency as it becomes more international and as companies look to raise funds in RMB via Hong Kong and other offshore financial centers."
--GEORGE LONG, CFA, Chairman and Chief Investment Officer, LIM Advisors Limited, Hong Kong

"An excellent investment handbook on dim sum bonds for practitioners."
--RICHARD MAK, CFA, Head of Advisory Services - Asia, Pictet & Cie, Hong Kong

"Kudos to the authors of this book for providing a very comprehensive source of information."
--MAGGIE TSUI, Managing Director, Deputy Head of Investment Services, Asia, BNP Paribas Wealth Management, Hong Kong

"This book provides a very timely and comprehensive study of the dim sum bond market."
--MICHAEL YONG-HARON, CFA, Managing Director, Credit Suisse Private Banking Division, Greater China

"In Dim Sum Bonds, Fung, Ko, and Yau provide a fascinating account of the dim sum bond market from relative obscurity a few years ago to a leading position in the growing offshore RMB bond market."
--JIMIN GUO, Ph.D., CFA, Executive Director, China Galaxy Securities Co. Ltd, Beijing

"The book is an indispensable reference tool for anyone investing or contemplating investing in this budding market."
--DAVID LAI, CFA, Investment Director, Fixed Income, Eastspring Investments (Singapore) Limited

"This book provides an easy-to-follow road map."
--LEE KERK PHUA, CFA, Chief Strategist, Phillip Mutual Malaysia

"Dim Sum Bonds offers insight into one of the more complex aspects of China's efforts to become a major player in global financial markets."
--KEITH FERGUSON, Chief Investment Officer, University of Washington, Seattle

"A must-read!"
--WAI LEE, Ph.D., Chief Investment Officer and Director of Research, Neuberger Berman, New York

"Fung, Ko, and Yau have authored a timely reference that sheds light on a nascent yet soon to be vital financial instrument in the global marketplace."
--DERRICK TZAU, CFA, International Research Analyst, Rainier Investment Management, Seattle/New York

HUNG-GAY FUNG, PhD, is Curators' Professor of Finance, Dr. Y. S. Tsiang Endowed Chair Professor of Chinese Studies, and department chair in the Finance and Legal Studies Department, College of Business Administration, University of Missouri-St. Louis. His areas of research and teaching include international finance, financial risk management, and banking. He has published over 150 scholarly papers in various journals. He has also published seven books, numerous book chapters, and many teaching cases.

GLENN KO, CFA, is an executive director of the UBS Asian Credit Research team, covering corporate credits. He focuses on Chinese properties and industrials. He has extensive experience in Asia's straight and convertible bond markets, with previous work experience in proprietary trading desks, sell-side research, and rating advisory at financial institutions, such as Daiwa, JPMorgan and HSBC. Prior to these, he worked at Moody's as a credit rating analyst.

JOT YAU, PhD, CFA, is Dr. Khalil Dibee Endowed Chair in Finance at the Albers School of Business and Economics, Seattle University. Since joining Seattle University in 2001, he has served as the chair of the department of finance and MSF program director. He has published numerous articles and chapters in finance journals and professional books. He is the coeditor and coauthor of two books. He has served on several editorial boards, and was the associate editor and special editor (Risk Management) of the Journal of Alternative Investments. He cofounded Strategic Options Investment Advisors Ltd., a Hong Kong-based investment advisory firm. He served on the board of directors of Group Health Credit Union and of the Northwest Hedge Fund Society, where he was also the treasurer.

Preface xi

Acknowledgments xvi

List of Acronyms and Key Terms xvii

Chapter 1
New Market--Developments, Opportunities, and Challenges 1

1.1 Introduction 1

1.2 Overview of the Dim Sum Bond Market 6

1.3 Policies Supporting the Growth of Offshore Renminbi 8

Chapter 2
Offshore RMB-Denominated Bonds--Dim Sum Bonds 21

2.1 Definition 21

2.2 Bond Issue Characteristics 24

2.3 Conclusion 46

Chapter 3
Issuers 49

3.1 Issuers 50

3.2 Classification of Issuers by Type of Organization 52

3.3 Classification of Issuers by Industry 60

3.4 Classification of Issuers by Domicile and by Deal Nationality 63

3.5 Motivations behind Issuers 67

3.6 Conclusion 75

Chapter 4
Investors 79

4.1 Investor Type and Mix 80

4.2 Motivation 82

4.3 Risk/Return Analysis 86

4.4 Conclusion 98

Chapter 5
Investment Banks and the Dim Sum Bond Issuing Process 101

5.1 Dim Sum Bond Issuing Process 101

5.2 Primary Issues 104

5.3 Bookrunner/Manager Rankings 116

5.4 Bond Issuing Fees 118

5.5 Retail versus Institutional Tranches 118

5.6 Conclusion 119

Chapter 6
Case Studies of Landmark Issues 121

6.1 Landmark Issues 121

6.2 Case 1: The First Dim Sum Bond and the First Chinese Financial Institution Issuer--China Development Bank (and the First 15-Year and 20-Year Bonds) 126

6.3 Case 2: The First Dim Sum Bond Issued by a China-Incorporated Foreign Bank--The Bank of East Asia (China) Limited 131

6.4 Case 3: The First Dim Sum Bond Issued by the Chinese Central Government 135

6.5 Case 4: The First Dim Sum Bond Issued by a Foreign Multinational Corporation--McDonald’s Corporation 137

6.6 Case 5: The First Dim Sum Bonds Issued by a Supranational Agency--Asian Development Bank (and the First 10-Year Dim Sum Bond) 142

6.7 Case 6: The First Dim Sum Bonds Issued by a Chinese Company, Incorporated Outside Mainland China and
Listed in Hong Kong (Red-Chip Corporation)--Sinotruk (Hong Kong) Limited 145

6.8 Case 7: The First Mainland Chinese Corporation Listed in Hong Kong (H-share) Issuer of Dim Sum Bonds--Beijing Capital Land Ltd. 149

6.9 Case 8: The First PRC-listed (A-Share) Issuer of Dim Sum Bonds--Gemdale Corporation 153

6.10 Conclusion 157

Chapter 7
Conclusion 159

7.1 Review and Preview of the Development and Growth of the Dim Sum Bond Market 159

7.2 Market Participants 166

7.3 Ongoing Developments Affecting the Dim Sum

Bond Market 174

7.4 Final Remarks 176

About the Authors 179

Index 181