Moody’s Investors Service has released a report addressing investors’ frequently asked questions on the rating agency’s approach to analysing 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 (RMB).
An earlier Moody’s report, published on 19 January 2011 and entitled "The Current Menu for Renminbi Bonds in Hong Kong: Dim Sum or Synthetic?", provided background commentary on this evolving bond market in Hong Kong.
The lead author of today’s report, Ivan Chung, a Moody’s vice president in Hong Kong, 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 US 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 US 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 characterise 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."
