Dim Sum Bonds Provide Cheap Dollars for India Bank: China Credit

Fri, Nov 18, 2011

India’s IDBI Bank Ltd. (IDBI) says it cut a percentage point off its dollar funding costs by going to Hong Kong’s Dim Sum bond market, where appetite for a strengthening Chinese yuan is offsetting concern over emerging-market risk.

IDBI Bank sold 650 million yuan ($102 million) of three- year notes to yield 4.5 percent on Nov. 11, converted the proceeds to dollars and used swap contracts to eliminate any exchange-rate risk, said Melwyn Rego, an executive director at the state-backed lender. The yield on IDBI’s dollar bonds due February 2016 rose 101 basis points in the past three months to 5.17 percent, Royal Bank of Scotland Group Plc prices show.

“We have been able to raise money, on a swapped basis, 100 basis points finer than what we would have got had we accessed the regular dollar bond market,” Rego said on Nov. 16 in Mumbai.

Yuan deposits in Hong Kong more than quadrupled to a record 622 billion yuan in the last four quarters as the currency strengthened 4.8 percent versus the dollar, the best performance among 25 emerging-market currencies tracked by Bloomberg. Expectations for further appreciation are spurring demand for assets denominated in yuan.

The average yield of 3.65 percent for Dim Sum bonds compares with the maximum one-year deposit rate of 0.6 percent offered on the website of HSBC Holdings Plc’s Hong Kong unit.

IDBI Bank’s debt is rated BBB- at Standard & Poor’s, the lowest of 10 investment grades, and Rego said it’s become more costly for the lender to borrow dollars directly “because of very difficult conditions in international markets and the general flight to safety.”

Risk Aversion

The average yield on emerging-market companies’ dollar debt climbed 38 basis points, or 0.38 percentage point, in the past three months to 6.09 percent, JPMorgan Chase & Co. data show. It reached a two-year high of 7.14 percent on Oct. 4 as the MSCI Emerging Markets Index of shares sank to the lowest level since September 2009. The yield on 10-year U.S. Treasuries touched a record-low 1.70 percent on Sept. 22 the worsening debt crisis in Europe prompted investors to seek OUT the safest dollar- denominated assets.

IDBI Bank was the first Indian issuer of Dim Sum bonds and Rego said the lender will tap the market again, though “not in the immediate future.” Infrastructure Leasing & Financial Services Ltd., an Indian lender to road and power projects, plans to raise about $100 million through yuan-denominated bonds, Milind Patel, the deputy managing director, said on Sept. 20 in Mumbai.

‘Clever Swap’

“It makes sense from a financial engineering point of view that you can raise money in yuan if conditions are favorable,” Edmund Harriss, who oversees a $92 million Dim Sum bond fund as a London-based Investment Director at Guinness Atkinson Asset Management Inc. “You can do a very clever swap and get a pickup that way.”

IDBI Bank was able to secure cheap funds in the Dim Sum bond market in part because of its state backing, said Diederik Werdmolder, head of fixed-income portfolio management at SinoPac Securities (Asia) Ltd. in Hong Kong. The government owns 65.1 percent of IDBI, according to data compiled by Bloomberg.

Lafarge Shui On Cement Ltd., a joint venture between Lafarge SA (LG) and SOCAM Development Ltd., paid a 9 percent coupon on 1.5 billion yuan of Dim Sum bonds sold last week. Paris-based Lafarge, the world’s biggest cement maker, guaranteed the securities and has a BB+ credit rating at S&P, one level below investment grade. The company’s ratings were downgraded to junk by S&P, Moody’s Investors Service and Fitch Ratings this year.
Property Clampdown

“The bond market is still more interested in investment- grade issues and below-investment-grade issues require a relatively large risk premium, certainly in industries that are facing their own set of difficulties,” Werdmolder said. “The cement business is not very popular these days with the Chinese government trying to slow down the real-estate sector.”

China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases in April last year, saying “more forceful” steps were needed to cool speculation. Authorities imposed housing purchase restrictions in about 40 cities in 2011. Premier Wen Jiabao said on Nov. 7 that the government won’t rein in efforts to cool the property market.

Five-year credit-default swaps protecting China’s sovereign debt fell two basis points yesterday to 146 basis points, according to data provider CMA, which compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Highest Yield

The yuan weakened 0.16 percent this week and 0.03 percent today as of 10:44 a.m. to 6.3526 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency will gain 4.7 percent to 6.07 by the end of 2012, based on the median estimate of 21 analysts surveyed by Bloomberg. The yield on the 3.26 percent government bond due in June, 2014, added two basis points to 3.13 percent.

Lafarge Shui On’s coupon matched the highest rate paid since the Dim Sum bond market began in 2007. Credit China Holdings Ltd. sold 100 million yuan of two-year bonds with a 9 percent coupon on Sept. 1.

The yield on China Shanshui Cement Group Ltd. (691)’s 6.5 percent Dim Sum bonds due in July 2014 was 9.53 percent yesterday, down from a record 15.63 percent on Oct. 6, RBS prices show. The rate on Guangzhou R&F Properties Co.’s 7 percent notes due April 2014 has declined to 20.55 percent since peaking last month at 25.51 percent. The average yield in the Deutsche Bank AG Offshore Renminbi Bond Index dropped two basis points to 3.65 percent yesterday, up 11 basis points this month and 191 in 2011.

“Clearly, as more issues come to the market, people are going to be more selective,” said Harriss at Guinness Atkinson. “The trend will surely be for higher yields and more robust structures.”

for more read article at sourced Bloomberg

China pressures EU on debt, defends yuan

Wednesday 26 October 2011

BEIJING (Reuters) - China hopes the European Union takes effective measures to restore market confidence in tackling its debt crisis, the Foreign Ministry said on Wednesday, while also again defending the yuan's exchange rate.

Leaders of the 17 European countries using the euro will meet later on Wednesday to try to pin down a comprehensive response to the escalating sovereign debt crisis.

"I hope that the measures the EU adopts can effectively counter debt problems that some countries are facing and help in recovering market confidence and promote stability in Europe," Chinese Foreign Ministry spokeswoman Jiang Yu said.

Doubts are emerging as to whether the plan, intended to reduce Greece's debt burden, fortify European banks to withstand bond losses, and scale up the euro zone rescue fund to prevent market contagion, will yield concrete steps.

China already has an estimated 600 billion euro ($834 billion) exposure to euro zone debt, courtesy of the 25 percent or so of its $3.2 trillion of foreign exchange reserves that analysts believe to be invested in euro-denominated assets.

China's relative lack of options on where to store its vast reserve of foreign exchange wealth give it strong reasons to press Europe to surmount divisions, contain the debt crisis and thereby protect Beijing 's stake in its biggest trade partner.

Klaus Regling, head of the European Financial Stability Facility, will visit Beijing on Friday, the EU's delegation to China announced.

The euro bloc's crisis has already taken a toll on Chinese exports, which grew at their slowest pace in seven months in September . Exports were a net drag on China's economic growth in the first nine months of this year.

China's top leaders have voiced regular support for European efforts to solve the debt crisis, though many analysts now say there are better ways for China to support Europe and its own economy than simply buying up high risk debt from euro zone governments struggling to stay solvent.

On a second economic issue that has caused political headaches for China, the value of its yuan currency, also known as the renminbi, spokeswoman Jiang said its rapid appreciation would not be good for the world economy.

The U.S. Senate has passed a bill that aims to pressure Beijing to raise the value of the yuan more quickly. The yuan has risen about 3.6 percent so far this year and 7.4 percent since it was depegged from the dollar in June 2010.

"Our policies fit our national situation and are beneficial to the stability and development of the global economy," Jiang said.

"Demanding the renminbi appreciate drastically over a short period of time is inappropriate. A slowdown in China's economy would decrease global demand, and would be detrimental to the world economy."

(source Reuters)

Former Chinese coal boss gets life in jail for graft

Sun Oct 9, 2011

BEIJING Oct 9 (Reuters) - A former senior executive at China's No. 3 state-owned coal producer has been sentenced to life imprisonment for accepting bribes, state media Xinhua said on Sunday.

Zhao Shenglong, a former vice-president at Datong Coal Mine Group, was found to have taken two bribes totalling more than 8.29 million yuan ($1.3 million) between 2000 and 2005, Xinhua said.

Datong is the parent of Shanghai-listed Datong Coal Industry Company Ltd . The company was not immediately available for comment.

Corruption is common in China's political and business arenas. High-profile officials who have fallen from grace after bribery cases include former Shanghai Communist Party Chief Chen Liangyu, and Kang Rixin, the former head of China's main nuclear energy firm.

Widespread corruption has bred resentment among many Chinese, who also feel aggrieved by the pollution and illegal land grabs that accompany China's rapid economic growth. ($1 = 6.386 Chinese Yuan)

(sourced Reuters)

Brazil's Vale says not worried about iron ore prices

Sat Oct 8, 2011

MANJUNG, Malaysia Oct 8 (Reuters) - Brazilian iron ore giant Vale SA said on Saturday it was not concerned about iron ore prices despite a recent drop in the price of copper.

"We will look at the market and see how it behaves 2-3 months," Vale executive director Jose Martins told reporters at the groundbreaking ceremony of the company's $1.3 billion iron ore distribution centre in Malaysia's northern Perak state.

"We are not concerned about the behaviour of the price because we follow the market. Whatever the market says we follow. We are not pricemakers, we are price followers."

Copper capped its biggest weekly gain in more than six months with a 2 percent burst on Friday as encouraging U.S. job data helped the metal recover after falling to a 14-month low early this week.

Martins said any decision to change Vale's settlement currency from the US dollar to Chinese yuan would depend on how convertible the yuan is, with any decision to make it more convertible "very welcomed".

(sourced Reuters)

China threatens trade war with US over yuan

Wednesday, 05 Oct 2011

A war of words has erupted between China and the United States, after a US senate vote to move ahead with a bill that would punish China for keeping the value of its currency low and the spat could trigger wars of another kind which could have a more tangible impact on the fragile global economy.

Mr Ma Zhaoxu spokesman of Chinese Foreign Ministry warned on China's official government website that “The yuan bill passed by the US Senate will not solve its problems, such as insufficient savings, high trade deficit and high unemployment rate, but it may seriously affect the whole progress of China's reform of its yuan exchange rate regime and may also lead to a trade war which we would not like to see.”

Mr Ma added “By using the excuse of a so called currency imbalance, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates World Trade Organisation rules and seriously upsets Sino US trade and economic relations. China expresses its adamant opposition to this.”

Echoing the Foreign Ministry's trade war warning, the People's Bank of China pointed out that factoring in inflation, the yuan has appreciated greatly and is close to a balanced level in line with China's trade situation and restructuring needs.

The US Senate vote opened a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the US government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies. US lawmakers, eyeing the 2012 elections, said keeping China's currency undervalued had cost American jobs and that a fairer exchange rate would help cut an annual trade gap Washington puts at more than USD 250 billion.

The latest tensions between China and the US are un welcome at a time when the global economy is in a precarious position. There are also concerns of a currency war should China the largest foreign holder of US government debt retaliate by dumping US Treasuries.

(sourced from Todayonline)

China July exports hit record high, surplus swells

By Koh Gui Qing and Zhou Xin
Aug10, 2011

BEIJING (Reuters) - China's exports hit a record high in July as shipments to Europe and the United States proved surprisingly buoyant, allaying concerns that debt problems abroad may hold back the world's No. 2 economy.

But analysts warned it was too soon to declare that Chinese exports can hold up in coming months as debt worries, sluggish consumer spending and now wildly volatile financial markets plague its two biggest customers.

"Both imports and exports are likely to grow at a slower pace in coming months," said Li Xunlei, an economist at Guotai Junan Securities in Shanghai. "The global financial market turbulence may lead to a contraction in external demand."

July exports rose 20.4 percent from a year ago, the strongest gain since April and surpassing economists' median forecast for a 17.4 percent rise, data on Wednesday showed.

Imports were roughly in line with expectations, rising 22.9 percent in July from a year earlier, the General Administration of Customs said. Economists had forecast growth of 22.3 percent.

"China's trade sector is still facing great uncertainties," said Nie Wen, an analyst at Hwabao Trust in Shanghai. "Developed countries are forced to take austerity measures, and emerging markets may tighten (policy) as well to tame inflation."

Indeed, just hours earlier, the U.S. Federal Reserve took the unprecedented step of promising to leave interest rates near zero for at least two more years, painting a gloomy picture for the world's largest economy.

Noting that monetary policy risks are shifting to supporting growth from fighting inflation, China has signaled it may pause its 10-month policy tightening campaign for now.

Wednesday's data suggested sluggishness in the U.S. and European economies has yet to put a big dent in Chinese export growth, as many investors had feared. Instead, robust U.S. and European shipments helped pushed the value of China's monthly exports to a record high of $175.1 billion.

Although annual growth in Chinese exports to the United States in July was marginally weaker than June at 9.5 percent, the total value hit the year's high of $30 billion.

Annual growth of exports to Europe nearly doubled to 22.3 percent, lifting the value of sales to $35.1 billion. Export growth to Japan also picked up sharply.

BHP Billiton (BHP.AX)(BLT.L), the world's biggest miner, said on Wednesday it expected weak growth in Europe and the United States to persist for many years as they deal with their debt crises, heightening the reliance on China's fast-growing economy.

PRESSURE ON YUAN TO RISE

Other data this week showed that China's inflation hit three-year highs of 6.5 percent in July, and some officials have said that it has likely peaked.

But underlining the fine balance that Beijing has to tread between managing growth and inflation, July's brisk exports caused China's trade surplus to balloon to $31.5 billion, its widest since January 2009.

That could fuel price pressures at home and more criticism from its trade partners abroad that Beijing is keeping its yuan currency suppressed to sell more exports at their expense, allegations China has always denied.

As part of Beijing's policy to prevent the yuan from rising too quickly, it buys dollars earned from trade revenues. But Beijing injects more than 6 yuan into China's banking system for every dollar it buys, adding to a surfeit of cash that fans inflation.

So even if Beijing is reluctant to tighten policy now, it may need to step aside nonetheless to let the yuan climb more briskly if it wants to keep a lid on prices, analysts said.

"China's monetary policy has been kidnapped by foreign capital inflows," said Zhang Lei, an analyst at Minsheng Securities in Shanghai, referring to the widening trade surplus.

"Yuan appreciation is still one important option."

"CHINA IS OK"

To be sure, all signs suggest that China's economy has taken the steady policy tightening in the past year well in its stride, with its red-hot growth moderating only slightly so far.

Most market watchers continue to predict a soft economic landing, with growth easing to 8-9 percent, rather than a sharp decline.

Many economists agreed that the latest trade data showed China's growth engine is whirring along, with domestic demand solid.

Retail sales climbed 17.2 percent in July from a year earlier, albeit not quite as much as analysts had expected, while car sales rose 6.7 percent, picking up momentum from the previous month.

Imports of raw materials such as copper and iron ore saw strong gains from June, and the recent plunge in global commodity prices is likely to stoke more Chinese buying.

That should comfort investors looking to China to pick up some slack in global demand as other major economies sputter.

And China's relatively low -- albeit rising -- production costs could keep its exports competitive when times are rough, analysts said.

"In the past couple of months, the U.S. economy has been turning down, but China's export growth has held out," said Bank of America-Merrill Lynch's Lu.

"This shows China's economy is okay."

Beijing, which has repeatedly voiced confidence in China's growth in the past year, reiterated the line this week, though it has been clearly rattled by heavy selling in financial markets after the United States lost its top-rated credit rating on Friday.

Premier Wen Jiabao said on Tuesday that China's economy continues to show good growth momentum. But in a sign Beijing would rather err on the side of caution, he signaled China may soften its strike against inflation.

An official Chinese newspaper also said as much on Wednesday by declaring in a front-page editorial that Beijing would refrain from raising interest rates for now due to the rout in global markets.

However, China top economic planner stressed that inflation dangers remained, including the possibility of a new round of monetary easing in the United States which could fuel fresh price pressures.

HK, China shares hit fresh 2011 highs, more gains seen

Fri Apr 8, 2011 9:30am GMT

* Rotational buying in telecoms, China Unicom outperforms
* Hang Seng seen testing Nov '10 peaks by early May
* Shanghai hits second consecutive 2011 high
By Yixin Chen and Clement Tan

SHANGHAI/HONG KONG, April 8 (Reuters) - Hong Kong and mainland stocks rose again on Friday, reaching fresh 2011 highs, and institutional investors are expected to keep increasing their exposure next week based on attractive valuations and demand for materials.

The benchmark Hang Seng Index recorded a third weekly gain as institutional investors have turned bullish following a favorable earnings season and signs of China inflation easing.

The Shanghai Composite Index closed up 0.7 percent on the day and 2.1 percent on the week to 3,030.0, a fresh 2011 high, keeping the index above the key 3,000-point level and extending the gain on the year to 7.8 percent.

The benchmark Hang Seng Index closed up 0.5 percent on the day and 2.8 percent on the week. During Friday's trading, it reached a new high for the year of 24,468.6 before dipping to close at 24,396.1.

The next target for the Hang Seng is 25,000 -- which was tested in November 2010.

"The Hang Seng will probably top last November's peak sometime end April or early May," said Li Kwok-Suen, a fund manager with Phillip Securities Ltd in Hong Kong. "Institutional investors will mainly drive this rally, with hedge funds giving it a lift."

In Hong Kong, China Unicom (Hong Kong) Ltd led gains on the benchmark, closing up 6.5 percent on volumes that were five times its Thursday level and 2.3 times its 30-day average. The stock ended the day technically overbought, with a relative strength index (RSI) value of 77.5.

Analysts said there was some rotational buying within the telecommunications sector on Friday, with investors buying Unicom and selling its more established peer, China Mobile Ltd , down 0.3 percent on the day.

Still, several analysts expect China Mobile and HSBC Holdings , which have strong weight in the benchmark, to lead a broad rally on the Hang Seng next week, but suggest that other big banks and resource stocks might support.

HSBC, up 1.0 percent on the day, is trading in Hong Kong at a 12-month forward price-to-earnings ratio of 10.7 times, below the 10-year average valuation of 13.1 times, Thomson Reuters I/B/E/S data showed. China Mobile is trading at 10.1 times, lower than its average valuation over the past decade of 12.6 times.

A slew of IPOs in the next few weeks will likely support a rally, thanks to foreign inflows, which have increased in the last three weeks, analysts said.

SBI Holdings is expected to debut on April 14 with Hui Xian, Cheung Kong's yuan-denominated real estate investment trust, expected to debut April 15.[ID:nTOE72600K]

In its quarterly report released on Thursday, HSBC Global Research shifted to overweight on Chinese equity markets for the first time in a year, while remaining neutral on Hong Kong.

Analysts at the bank cited the effectiveness of Chinese monetary policy on keeping inflation contained. M2 growth slowed to 15.7 percent year-on-year in February, lower than the 16 percent target the Chinese central bank has set for this year. The base effect also suggests inflation will slow in the second half of 2011, HSBC said.

SHANGHAI INVESTORS BUY STEEL

China's main stock index ended up 0.7 percent on Friday as investors bought selected stocks, such as steel companies, keeping the index hovering above the key 3,000-point level.

"Generally, the index did not fall sharply after interest rate hike," said Ju Zihua, an chief analyst AVIC Securities in Jiangxi province. "But, a cautious mood is still hovering around the market, and we still need to focus on some previous hot shares and blue chips."

He said non-ferrous metal, coal, brokerage and other blue chips were in focus.

Turnover in Shanghai fell to 147 million yuan ($22.4 million) from 152 billion yuan on Thursday, reflecting investors' worries about inflation and further tightening of monetary policy.

Almost all steel makers listed on the Shanghai and Shenzhen market rose as investors were upbeat that steel demand would be large in April following the earthquake in Japan.

Inner Mongolia Baotou Steel Union , the most active share, jumped its 10 percent daily limit, while Xining Special Steel Co rose 6.1 percent.
(Editing by Kevin Plumberg and Richard Borsuk, sourced Thomson Reuters)

Yuan rises on speculation China to permit gain to ease inflation

Sunday, 27 Feb 2011

China yuan gained after sliding recently by the most this month, on speculation the government will permit more appreciation to contain inflation.

Industry data show the yuan advance came as the US Dollar Index traded on ICE futures in New York a gauge of the greenback strength dropped for the first time in three days. Crude oil prices jumped 11% in the past two days in New York on concerns a week long uprising in Libya will disrupt supplies. China imported 54% of the oil it used in 2010.

Mr David Cohen head of Asian forecasting at Action Economics in Singapore said “Beijing sees the usefulness of appreciation as part of its policy to contain inflation, along with higher interest rates and reserve requirement ratios. Appreciation is another way to help contain price pressure from global commodities.”

According to the China Foreign Exchange Trade System the yuan gained 0.09% to 6.5743 per dollar as of 4:30 PM in Shanghai from 6.5803. It fell 0.21 percent retreating from a 17 year high of 6.5654 reached February 21. The central bank set its daily reference rate 0.09% weaker at 6.5828.

China allows yuan swaps trade by banks

Monday, 31 Jan 2011, Reuters

SHANGHAI - China will permit designated banks to trade yuan/foreign currency swaps on behalf of their clients from March 1, the country's foreign exchange regulator said.
Non-bank clients will be allowed to sign agreements now and exchange yuan and foreign currencies, and their interest rates, at a future time, the State Administration of Foreign Exchange said late on Sunday. Currently only banks can trade yuan/foreign currencies swaps.
The reform is part of China's efforts to expand yuan business to help regionalise and eventually globalise the currency.

Under US pressure to allow the currency rise faster, Beijing has also vowed to make the yuan more flexible and market-oriented as the country gradually deregulates its capital markets.
Developing derivatives based on exchange rates will give Chinese banks and companies badly needed tools to hedge currency risks as the yuan gradually becomes more volatile in the future in line with those reforms.

"The notice on business related to yuan/foreign currency swaps of bank clients is issued in order to allow domestic economic entities to hedge risks," the SAFE said in a statement on its website, www.safe.gov.cn.
Bank branches would also be allowed to perform yuan/currency swaps on behalf of clients under the precondition that they are authorised to do so by their headquarters, the SAFE said.
Interest rates agreed to be exchanged in the swaps must not exceed the limits set by the People's Bank of China (PBOC), among other provisions set by the forex regulator, which comes under the central bank.

The PBOC is launching more derivatives linked to the yuan's exchange rate and interest rates, such as those based on the yen , the euro , the dollar , international bonds and bank deposits, as it eyes more hedging tools for Chinese companies.
For now, the yuan has moved in an average range of about 100 pips per day. While its movements are now much wider than during the time of a de facto peg before June 2010, they are still far too small to create real demand for hedging.
China's official interest rate system is completely controlled by the government, with deposits allowed to be set slightly lower than PBOC benchmarks, while lending rates may be slightly higher. (sourced:reuters)

China to open up yuan cautiously and boost trade

Sunday, 30 Jan 2011

Reuters reported that China will carefully open up its yuan to more trading based on market needs and plans to double its level of imports in five years as the country liberalizes its economy, now the world's second largest.

Mr Chen Deming Commerce Minister said "Over the next year or for an even longer period, China will continue to stick to our mechanism of liberalizing the yuan according to market needs."

China has been gradually making its currency, the renminbi which means the people's money, more international with the nascent offshore yuan market in Hong Kong growing rapidly in less than a year since trade settlement and investment rules.

The yuan is expected to hit 6.3 per dollar by the end of 2011.

As China slowly strengthens its yuan and boosts domestic consumption, it will also import more goods, such as commodities and consumer products.(Sourced:reuters)