This article addresses frequently asked questions about our approach to analyzing and rating so-called “dim-sum” and synthetic renminbi bonds – bonds issued outside China, typically in Hong Kong, but denominated in the Chinese currency, the renminbi (RMB).

• Offshore risks similar. China controls its capital account. Therefore, in addition to issuers’ credit risks, offshore bonds – i.e. bonds issued outside China by Chinese issuers – are subject to refinancing risks regardless of their denomination in U.S. or Chinese currency (RMB). We follow a similar analytical approach to rating dim-sum and synthetic RMB bonds as for other offshore bonds.

• Lingering policy uncertainty for dim-sum. The risk profiles of an issuer’s synthetic RMB bonds, denominated in RMB but repayable in U.S. dollars (USD), resemble those of its offshore USD bonds, so we use a similar analytical approach in our rating of each. However, for near-term refinancing of dim-sum bonds, denominated and repayable in RMB, regulatory and policy uncertainties characterize the availability and use of offshore Chinese currency.

• Subordination is key for rating of bonds. As with other offshore bonds issued by Chinese companies, the level of structural or legal subordination of the dim-sum bonds could have an impact on the final bond rating.

• Foreign- and domestic-currency ceilings. Chinese issuers are subject to China’s foreign-currency country ceiling of Aa3 with positive outlook, regardless of where outside China, in what currency, or via what denomination they issue debt.

Synthetic RMB Bonds and Dim-Sum Bonds