New rules may be in the works for corporate dim sum bond issuers

February 07, 2012 | BY

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Clarity on repatriation of proceeds

Baosteel Group (Baosteel) became the first corporate to issue dim sum bonds. This reflects the fact that the Chinese government is taking steps to clarify its approval process for non-banks to issue yuan-denominated debt securities.

Baosteel, a Chinese state-owned steel manufacturer, is the first Mainland Chinese corporate issuer of offshore renminbi (Rmb) bonds, having received approval from the National Development and Reform Commission (NDRC) and registering the bonds with the State Administration of Foreign Exchange (Safe). It raised Rmb3.6 billion (US$564 million).

Allen & Overy successfully guided Baosteel and helped the steel maker obtain the necessary approvals. Lead partner Walter Son said that while there is a clear regulatory framework for PRC banks to issue dim sum bonds, “the approval process applicable to PRC companies is still at a pilot stage and is less clear”.

“It is believed that the relevant PRC authorities, mainly the NDRC and the People's Bank of China, have started drafting regulations which, when published, will provide greater clarity of the approval process applicable to PRC corporate issuers,” said Son.

Cindy Lo, a Beijing-based counsel for Allen & Overy recommends that Chinese corporates considering tapping into the dim sum bond market should also “consider how they plan to use the bond proceeds and whether they will be kept offshore or repatriated back to Mainland China”.

She and Son hope that the new rules will clarify whether the mandatory requirement, that all dim sum bond proceeds issued by PRC banks must be repatriated back to China, will also apply to a PRC corporate issuer.

With the steady demand from international investors, it appears that dim sum bonds will continue to play an active role in the capital markets. “Investors have been looking at deal terms and credit risk with greater scrutiny as a result of currency appreciation concerns,” said Lo. “But given the PRC government has been taking meaningful steps towards currency liberalisation, dim sum bonds look like they're here
to stay.” CM

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