China’s Municipal Yuan Debt Is Going Offshore For the First Time

(Bloomberg) -- The so-called Dim Sum bond market is about to get a new kind of issuer: local Chinese governments. 

In a first for the $77 billion offshore yuan bond market, Shenzhen city government is seeking underwriters for an offering of up to 5 billion yuan ($771 million), according to a statement Tuesday. Guangdong province is also planning such a sale in Macau, without giving the size.

While relatively small, such tenders will help pave the way for more regular issuance, giving international investors more yuan-denominated assets to add to their portfolios, said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp in Singapore. 

Offshore yuan debt sales are on track for the highest since 2015. Appetite was helped by tighter monetary policy in China earlier this year coupled with relatively easy money in the U.S., causing the cost to swap the Chinese currency into dollars to drop. 

China has sought to boost the yuan’s international popularity, urging greater use of the currency in trade and easing exchange-rate controls and intervention. The nation’s finance ministry has sought to expand its bond issuance channels from the interbank market to retail investors and now offshore. Overseas investors’ holdings of onshore local debt has increased significantly by nearly 80% this year as of July.

The proposed offshore sales come amid concerns of a surge in local government bond sales onshore, as Chinese authorities pledge more support for the economy. Worries about surging supply continue to haunt the nation’s sovereign bond market. The proposed offshore sales won’t be large enough to alleviate those pressures, added Cheung. 

Though foreign buyers already have access to onshore local government bonds, an offshore offering could attract more global funds, said Ming Ming, analyst at Citic Securities.

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With assistance from Bloomberg