Cross-border bond issuance more than halved to USD34b

A sharp fall from the previous quarter's USD75b.

For the issuance of dim sum bonds, 3Q14 was a relatively quiet period, but Fitch Ratings expects issuance in 4Q to rebound and the trend of yearly increases in dim sum bond issuance to continue in 2014.

According to a release from Fitch Ratings, total dim sum bond issuance in US dollar terms fell by 65% to USD4.1bn in 3Q14 from 2Q14's record level of USD11.7bn. The total number of entities issuing these bonds fell to 45 compared with 115 in 2Q14.

Fitch views the third quarter as a seasonal low, consistent with 2013's case when total dim sum bond issuance was only USD1.1bn in 3Q13. However, issuance rebounded strongly to USD7.1bn in 4Q13.

Dim sum bond issuance fell sharply in 3Q14 versus 2Q14 for both local Chinese and multinational names, and across the three main categories of financial institutions, sovereigns, and corporates.

Financial institutions continued to account for the lion's share of dim sum bonds issuance, with USD2.9bn or 70% of 3Q14's total issuance.

However, their issuance fell 50% from 2Q14's USD5.8bn. Issuance by sovereigns fell to USD0.7bn from USD3.1bn, and issuance by corporates declined to USD0.5bn from USD2.7bn.

Here's more from Fitch Ratings:

Nevertheless, issuance amounts for all three classes were higher when compared with the year-earlier period when financial institutions issued USD0.5bn, sovereigns USD0.1bn and corporates USD0.46bn.

Aside from dim sum bonds, the cross-border issuance market for international Chinese corporates also underwent a seasonal slowdown in 3Q14, with issuance falling to USD6.4bn from a record USD38bn in 2Q14.

China's case was not isolated; cross-border issuance by corporates for the whole of Asia-Pacific fell to USD34bn in 3Q14 from a record high of USD75bn in 2Q14, though it remained above the USD25bn issued a year earlier.

Issuance levels in Asia-Pacific during the first and third quarters are typically lower due to seasonal factors, including holidays. Hence, Fitch expects bond issuance by corporates in Asia-Pacific, including dim sum bonds, to bounce back in 4Q14.

Sovereign dim sum bond issues by China's Ministry of Finance, which are largely conducted for market development purposes, have been concentrated in the second and fourth quarters since 2012, and another round of large issuance looks likely 4Q14 (2Q14: USD2.5bn).

In October the UK government is set to become the first non-Chinese sovereign to issue dim sum bonds as an important step in its plans for London to become a major offshore trading centre for the yuan.

So far in 2014, dim sum issuance of USD27.1bn over 1Q to 3Q has already exceeded 2013's full-year tally of USD20bn. Notably in the case of 2013, 4Q's USD7.1bn accounted for a disproportionally high 35% of the year's total issuance amount.

If we were to apply this same ratio to 2014, then activity could rebound strongly to a record of USD15.0bn in 4Q, and total issuance in 2014 could be around USD42.0bn, more than double that of 2013.

However key risks to such a strong rebound in 4Q14 include interest rate and liquidity levels, both within the dim sum bond market and in comparison with the onshore yuan market and offshore US dollar market.

Fitch expects the dim sum bond market to continue growing at a steady pace, driven by the Chinese government's efforts to internationalise the yuan; increasing willingness by exporters to China to accept yuan-denominated payments; and a rising number of global financial centres offering yuan clearing and settlement infrastructure.

Fitch expects significant growth potential, as the dim sum bond market remains a mere fraction of the USD1.5trn local yuan bond market as of end-2013.