Hong Kong’s dimsum bonds subject to refinancing risks

And lingering policy uncertainty for dim-sum bonds is to blame, says Moody’s.

"Unlike for synthetic RMB bonds or straight U.S.-dollar bonds from Chinese issuers, regulatory and policy uncertainties characterize the availability and use of offshore Chinese currency for near-term refinancing of dim-sum bonds," says Ivan Chung, a Moody's vice president in Hong Kong.

Here’s more from Moody’s:

In a report, Moody's Investors Service addresses investors' frequently asked questions on the rating
agency's approach to analyzing and rating so-called "dim-sum" and synthetic Renminbi bonds from Chinese companies—bonds issued outside China, typically in Hong Kong, but denominated in Chinese currency, the
Renminbi.

Chung further says, "We follow a similar analytical approach as for other bonds in our rating of dim-sum and synthetic RMB bonds, which are redeemable in RMB and other currencies, respectively, with the latter
typically repayable in U.S. dollars." Chung notes that, in addition to issuers' credit risks, China's control of its capital account makes offshore bonds—i.e. bonds issued outside China by Chinese companies--subject to refinancing risks regardless of their denomination in U.S. or Chinese currency.

Chung refers to lingering policy uncertainty for dim-sum bonds in saying, "Unlike for synthetic RMB bonds or straight U.S.-dollar bonds from Chinese issuers, regulatory and policy uncertainties characterize the availability and use of offshore Chinese currency for near-term refinancing of dim-sum bonds."

Chung concludes by pointing out that sovereign foreign- and local-currency ceilings reflect local legal and foreign-exchange regimes. He says, "Ceilings apply to an issuer's domicile, not the place of issuance for its bonds. As a result, dim-sum and synthetic RMB bonds issued abroad by Chinese companies are subject to China's foreign-currency country ceiling of Aa3 with positive outlook."

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