Dim Sum Bond: What it is, How it Works, Panda Bonds

What Is a Dim Sum Bond?

"Dim sum bond" is a term for bonds denominated in Chinese renminbi and issued in Hong Kong. Dim sum bonds are attractive to foreign investors who desire exposure to renminbi-denominated assets, but are restricted by China's capital controls from investing in domestic Chinese debt.

The term comes from dim sum, a popular Hong Kong cuisine known for its variety of small dishes.

Understanding Dim Sum Bonds: A Guide for International Investors

International investors interested in the renminbi market can consider the dim sum bond market. Dim sum bonds are issued in Hong Kong. SAR by Chinese and foreign companies that prefer to avoid the stringent securities’ laws set by regulators in the People’s Republic of China (PRC). In other words, dim sum bonds are attractive to investors interested in holding debt issued in yuan, but are unable to do so due to Chinese domestic debt regulations.

Multinational companies, even those without a presence in China, can issue dim sum bonds to professional investors without seeking approval from either PRC or Hong Kong authorities. After issuing bonds, multinational issuers can use their proceeds freely in Hong Kong without PRC approval. Issuers can also use proceeds to settle cross-border trades.

Without needing PRC approval, the dim sum bond market attracts investors wanting to diversify. Investors betting on RMB appreciation can also use the dim sum bond market. This market allows China to control how much offshore yuan returns to the mainland.

Comparing Dim Sum Bonds and Panda Bonds: Key Differences and Similarities

Dim sum bonds are often compared to panda bonds. Panda bonds are onshore renminbi debt issued in China by overseas companies. Foreign firms use the panda bond market to raise capital, with domestic investors being the main buyers. Conversely, the offshore dim sum bond market is dominated by international investors.

The Dim Sum Bond Index: Tracking Performance and Key Issuers

The Dim Sum Bond Index, a market capitalization weighted index, measures RMB bonds' performance issued outside Mainland China. Top issuers by market weight include PRC, Bank of China Ltd., Lenovo Group Ltd., and others. Citigroup manages this index, which is rebalanced monthly.