(Yicai) Sept. 26 — Chinese internet giants have accelerated the issuance of Chinese yuan-denominated bonds in Hong Kong, also known as dim sum bonds, as their investment in artificial intelligence continues to grow.
Tencent Holdings plans to issue three yuan-denominated bonds worth a total of CNY9 billion (USD1.3 billion) on the Hong Kong Stock Exchange, the Shenzhen-based firm announced on Sept. 23. This was the first time Tencent unveiled plans to issue dim sum bonds.
The first is a CNY2 billion, 15-year note with an annual interest rate of 2.1 percent, the second is a CNY6 billion bond with a term of 20 years and an annual interest rate of 2.5 percent, and the third is a CNY1 billion note with a 30-year term and an annual interest rate of 3.1 percent, according to Tencent.
On Sept. 15, Baidu issued a CNY4.4 billion yuan-denominated bond in Hong Kong, the Beijing-based company’s first dim sum bond this year. Alibaba Group Holding issued its first CNY17 billion (USD2.4 billion) dim sum bond last November.
With AI taking the world by storm, technology firms are entering a peak of capital expenditure, an industry insider told Yicai. Dim sum bonds are becoming a new path for such companies to finance related investments due to their relatively low financing costs, the insider added.
Internet firms have substantial overseas operations, which result in great demand for offshore debt financing, according to the fixed-income research team at securities broker Shenwan Hongyuan.
The attractiveness of the offshore Chinese yuan bond market for companies with global operations is expected to continue to grow, given the recent expansion of the southbound leg of the Hong Kong-Chinese mainland stock connect, Shenwan Hongyuan noted, adding that internet firms will likely accelerate the issuance of dim sum bonds.
Some CNY771.4 billion (USD108.1 billion) worth of dim sum bonds have been issued this year as of Sept. 18, down 11 percent from a year earlier, according to data from Wind Information. However, the issuance pace surged since August, with the volume approaching CNY200 billion in the past two months.
Because of the Federal Reserve’s interest rate increase and the inverted interest rate spread between China and the United States, the financing cost of dim sum bonds is lower than that of US dollar bonds, said Zhang Jiqiang, director of the Huatai Securities Research Institute and chief fixed-income analyst.
In recent years, some local government financing vehicles have shifted to issuing dim sum bonds because of stricter regulatory scrutiny over onshore financing, Zhang noted, adding that most dim sum bonds are still concentrated among banks and local government financing vehicles, with the issuance from entities in other sectors being relatively small.
Editor: Futura Costaglione