Dim Sum Bonds
Dim Sum bond is the generic name for bonds denominated in Chinese Yuan (RMB-denominated) and issued in Hong Kong. These bonds can be issued by the Chinese or Hong Kong-based companies, and also by foreign companies.
These bonds derive their name from a traditional Chinese cuisine that offers a variety of small eats.
The bonds are attractive for both issuers as well as investors. The issuers benefit from the cheaper cost of debt while the investors benefit from the prospect of the Yuan appreciation, and currency diversification. These bonds are particularly attractive for foreign investors who want an exposure to the Chinese currency.
Everyone around the world wants to benefit from China’s phenomenal growth, however, strict capital controls restrict foreign companies from investing in China. Dim Sum bonds offer a way for foreign investors to get exposure in the Chinese market.
At the time of this writing, HSBC and Bank of China are the top underwriters for Dim Sum bonds. McDonalds was the first US company to issue Dim Sum bonds, followed by Caterpillar.
The Dim Sum market currently is about 100 billion Yuan and is expected to grow 300+ billion yuan by 2012.