Dim Sum Debt Comes To Canada, A First For Governments Outside China

Includes: CNY, CYB, FXCH
by: Jeffrey Friedland

Canada's British Columbian government announced in Hong Kong last week that the province intended to sell at least 500 million yuan ($80.1) million of government debt. What is newsworthy is that these bonds will not be denominated in U.S. dollars, or Canadian dollars, but instead in China's currency, the yuan.

This British Columbian bond offering will be the first time that a government outside of China has issued bonds denominated in the yuan. Yuan bond offerings issued in Hong Kong are typically referred to as dim sum bonds.

But, I don't see the British Columbian move as a surprise when you view it as a step by Beijing to internationalize its currency. For investors, dim sum bonds provide exposure to China's yuan, which can otherwise be difficult and restrictive to access.

In an interview in Hong Kong, Jim Hopkins, assistant deputy minister of finance of British Columbia was quoted as saying: "We're very confident (about) China's emergence as a global economic power. The internationalization of the yuan is a trend that's only going to grow."

Data released by Dealogic indicates that so far this year an estimated $13.97 billion of dim sum bonds have been issued outside of China by companies, up slightly from $13.47 billion last year.

Most issuance of dim sum bonds has been limited to China's state-owned-enterprises, and Chinese companies that have been interested in tapping the Hong Kong-based debt market.

In 2010, McDonald's (NYSE:MCO) became the first non-financial foreign company to sell dim sum bonds. The company sold 3% notes with a value of 200 million yuan ($32 million) in 2010.

Earlier this year Caterpillar Inc. (NYSE:CAT) sold 1.26 billion yuan of dim sum bonds, which was the company's third yuan denominated offering. Caterpillar was one of the first U.S. companies to tap the offshore dim sum market in 2010. The company raised funds in Hong Kong, but then moved the money to China, where the funds were used to finance its expansion.

In general, the tactic of Caterpillar, McDonald's, and other corporate issuers of dim sum bonds is to try to match the currency that they borrow, to the currency where they are increasingly generating more revenue. In both cases, this is the yuan.

If you conclude that China's currency will appreciate against global currencies, including the euro and the U.S. dollar, investing in dim sum bonds is likely a no-lose proposition.

China's yuan is destined to become one of the most dominant currencies in the world, and there is definitely a long-term internationalization trend. It's not likely that the yuan will dislodge the U.S. dollar and its role as the primary global reserve currency any time soon. But as the yuan becomes more internationalized, and as its use in international trade increases, it's likely that the yuan will also become a reserve currency.


As the amount of dim sum bond issuance increases, they'll provide an interesting opportunity for global investors who are interested in yield, coupled with an upside potential due to the likelihood of the yuan increasing in value relative to the U.S. dollar and euro over time.


Investing in debt of companies or governments denominated in currencies of emerging markets, including China's yuan, is not suitable for all investors and can be risky. It's important that investors thoroughly perform their own due diligence and analyze the potential risk.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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