Hong Kong’s dim sum bond market hits new heights as State Grid deal draws record orders

Hong Kong's offshore yuan bond market has reached another milestone, with State Grid Corporation of China issuing the largest single deal by a Chinese state-owned enterprise. The deal, valued at 14.9 billion yuan (US$2.2 billion), was facilitated by Bank of China and saw investor demand surpass all expectations. Orders for the bonds totaled an astonishing 193.8 billion yuan, more than 13 times the amount actually issued. This record-breaking issuance is a testament to the growing appeal of Hong Kong's dim sum bond market.

Dim sum bonds, named after the popular Chinese snack, have gained traction among investors as they offer lower borrowing costs and longer maturities. The deal, comprising five-year bonds at 1.86 per cent yield, ten-year notes at 2.18 per cent, and 20-year debt at 2.46 per cent, attracted significant attention from both domestic and overseas investors. The Bank of China's involvement as a joint global coordinator for the deal highlights the market's increasing sophistication and global reach.

Hong Kong's dim sum bond market has experienced substantial growth, with nearly 500 billion yuan of offshore yuan bonds sold in the first seven months of the year alone. The Bank of China has underwritten more than 100 billion yuan during this period, further demonstrating the market's robustness. Financial Secretary Paul Chan Mo-po recently announced that annual dim sum bond issuance has reached 1 trillion yuan in the past two years, with an outstanding bond size of around 1.6 trillion yuan.

The surge in dim sum bond sales is a result of lower yuan borrowing costs and growing investor demand. Goldman Sachs reported a more than 60 per cent year-on-year increase in sales during the first half of the year, as borrowers increasingly opted for longer-dated debt at lower yields. This trend marks a shift from the yuan appreciation-driven boom witnessed between 2011 and 2014, signaling a more diversified and stable growth trajectory for the offshore market.

Beijing's push to deepen cross-border use of its currency and bond markets has played a crucial role in this expansion. As of July, overseas institutions held 3.21 trillion yuan of bonds in mainland China's onshore interbank market, representing 1.8 per cent of the total market. The Bond Connect programme, a central bank initiative, facilitated more than two-thirds of these overseas investments, showcasing the growing global interest in Hong Kong's dim sum bond market.