Asian investors will soon be able to buy a yuan-denominated convertible bond targeted at Australia’s commercial and residential property sector.

Meeting the increasing appetite for “dim sum” bonds, Agincourt Capital plans to raise the equivalent of US$500 million in yuan, also known as the renminbi, in the next six to nine months before tapping investors for another US$500 million in 2013.

A coupon rate of 4% which will be paid in either yuan or Aussie dollars is also catching the eye of potential Chinese investors where the current five-year municipal bond rate is around 3.3%.

“The offering is unique in the market place and it has generated a lot of interest as the world’s first secured convertible yuan bond where funds will be invested outside of China,” chief executive officer Craig Turnbull told Deal Journal Australia.

Mr. Turnbull said the fund was hoping to settle on an office building in Melbourne in February while two other office buildings in Sydney and Brisbane are currently under due diligence.  The three properties are worth about 130 million Australian dollars (US$128 million) and another commercial property worth A$100 million in Perth is also on his radar.

“Yields are all more than 8% which hits our fund target so we’re very happy with the properties,” said Mr. Turnbull believes suitable assets are ripe for the picking.

“We think these market conditions can last another 6 to 12 months before prices will move and yields will start tightening,” he added.

Agincourt’s target return from core office properties is between 10% and 12% while the return from its opportunity properties which will include land development and distressed projects is between 15% and 18%.

Though the fund has had a few regulatory delays including revisions to the investor memorandum to meet rules in three different jurisdictions which has held it back from opening its offer, management is brimming with confidence that a quick initial close will be reached.

Agincourt is now waiting for an agreement with a placement agent to be finalized while Deutsche Bank has been confirmed as the escrow and settlement agent.

Mr. Turnbull said the group hopes to have a joint venture in London underway by mid-2012 where it plans to invest between £300 and £400 million in residential property, raising funds via a similar yuan bond.

“There’s very good business to be done in the United Kingdom by refurbishing and upgrading buildings to more modern standards but office yields aren’t as strong as in Australia,” said Mr. Turnbull who believes opportunities will arise from distressed debt plays since European banks won’t be rolling out refinancing loans.

Issuance of offshore yuan bonds amounts to US$12.7 billion in 2011 to date according to data provider Dealogic, up almost fivefold on 2010.

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“If we build at the average rate of the last 20 years many areas of the country will have a critical housing shortage by 2020. Under such a scenario the cumulative national shortage could approach 500,900 dwellings,” HIA senior economist Andrew Harvey said.

“Clearly that situation can’t be allowed to happen and it doesn’t have to happen. Substantial policy reform is required, and can be achieved, to ensure Australia begins reducing its shortage of dwellings, rather than accumulating a larger one.”

The greatest housing supply challenge is in New South Wales which, under HIA’s medium build-rate scenario, could reach a dwelling shortage of 155,700 dwellings by 2020 in the absence of sustained policy reform. This view was backed by Laing+Simmons earlier this week.

Under the same scenario, the projected dwelling shortages at 2020 in the other states and territories are: 104,200 dwellings in Victoria; 112,000 dwellings in Western Australia; 91,800 dwellings in Queensland; 24,600 dwellings in South Australia; 12,500 dwellings in the Northern Territory; and 1,400 dwellings in the ACT.

Click here to view the original article ]]> http://agincourtcapital.hk/industry-news/housing-shortage-to-become-dire-by-2020/feed/ 0 http://agincourtcapital.hk/in-the-news/agincourt-capital-in-china-daily-dim-sum-goes-on-the-menu-to-feed-investors/ http://agincourtcapital.hk/in-the-news/agincourt-capital-in-china-daily-dim-sum-goes-on-the-menu-to-feed-investors/#comments Thu, 25 Aug 2011 13:43:02 +0000 admin http://agincourtcapital.hk/?p=1208 By Li Tao

17 August 2011

Multinationals are raising capital with yuan-denominated bonds, as Li Tao reports from Hong Kong.

One year after the Hong Kong and the mainland monetary authorities further relaxed restrictions on yuan transfers, the city’s yuan-denominated bond market has become the talk of the town, driven by a spate of issuance during recent months.

On July 14, the asset-management company Agincourt Capital Management LLC launched yuan-denominated convertible bonds – also known as “Dim Sum” bonds – in Hong Kong. Agincourt’s bonds are specifically designed for investment in Australia’s booming real-estate market.

The bonds, equivalent to approximately 500 million Australian dollars ($521 million), give investors “access to the appreciation of the yuan and indirect access to the Chinese economy through Australia”, according to Agincourt’s chief executive officer Craig Turnbull.

“While many commentators see the yuan appreciating, we believe the Australian dollar trends very closely with the Chinese currency … and the Australian dollar, has, in fact, outperformed the yuan over the last 12 months, although the trend might not continue,” said Turnbull, explaining the rationale for issuing yuan bonds in Hong Kong at this moment in time.

Hong Kong’s yuan bond market, while still very new, is growing rapidly and is now centralized in the city, according to Turnbull, who believes more companies will come to the city to raise capital because the volume of yuan deposits is becoming huge and the cost of capital is relatively low compared with the rest of the world.

Aiming to develop the city into an offshore yuan financial center, the Hong Kong Monetary Authority (HKMA) – in effect, the city’s central bank – signed an agreement with the People’s Bank of China (PBOC) on July 19, 2010, which agreed that the city will impose no restrictions on yuan deposit holders who transfer cash to buy wealth-management products, thus paving the way for the development of such products.

The rapid appreciation of the yuan has also increased investor enthusiasm for the conversion of Hong Kong dollars into yuan. The city’s total yuan deposits reached 548.8 billion ($84.91 billion) in May 2011, almost four times more than the 149.3 billion yuan seen at the end of September 2010, according to data released by the HKMA in June.

“Many people understood this (the agreement between the HKMA and the PBOC) to be a significant development in the process of yuan internationalization, but most were surprised by the pace of development in the offshore yuan market,” wrote Daniel Hui, senior foreign exchange strategist with HSBC Holdings Plc in a report on July 19.

With borrowing costs on the mainland still relatively high and yuan-based trade settlements proceeding at a rapid pace, more borrowers, especially those whose businesses have heavy exposure to the mainland, have rushed to the city to issue yuan bonds to tap the rapidly growing market.

On July 7, Caterpillar Inc, the US-based manufacturer of construction and mining equipment, sold 2.3 billion-worth of yuan-denominated bonds in Hong Kong, the biggest-ever sale by a foreign multinational company. Caterpillar also became the first foreign borrower to take a repeat shot at the nascent offshore yuan market, after its financial arm sold a two-year bond issue worth 1 billion yuan in Hong Kong in November last year.

McDonald’s Corp, the first multinational company to issue yuan bonds in Hong Kong, is also reported to be planning a second sale, although in an e-mailed reply to China Daily’s question its spokesperson Betty Tian declined to comment on potential financial deals. The fast-food chain sold bonds worth a total of 200 million yuan in the city in August 2010.

The Chinese steel maker Baosteel Group Corp is also expected to issue around 6.5 billion-worth of yuan-denominated bonds in Hong Kong – the largest-ever sale by a State-owned Chinese company, overtaking the 3.5 billion yuan raised by Sinochem Group from the issue of a three-year bond in January, according to media reports this month, citing unnamed sources.

The spate of issuance indicates that the offshore yuan bond market is becoming a sustainable financing venue for multinational companies and a beneficial investment vehicle for local residents, according to Joanne Yim, chief economist at Hang Seng Bank Ltd.

However, the market generally expects the yuan to appreciate for the next few years, and as a result, the rates of interest paid on the bonds remain very low.

Caterpillar’s latest issue of two-year bonds has a coupon of 1.35 percent, well below its two-year dim sum bond, which had a 2 percent yield last November. It is also lower than the 3 percent offered by McDonald’s yuan bond issued in August 2010.

“Although the yield of the yuan bond is not very attractive, it is better than just putting your money in the local bank. Moreover, people anticipate that the yuan will appreciate by about 5 percent each year in coming years, which is making yuan bonds a rather popular investment vehicle among Hong Kong investors these days,” said Yim.

Multinational companies have a number of reasons for issuing dim sum bonds in Hong Kong, said Donna Kwok, an economist at Greater China Economics Research at HSBC Holdings Inc.

“First, Hong Kong remains the only active, functional and liquid offshore yuan market in the world, where foreign companies can raise funding in the Chinese sovereign currency,” said Kwok.

“Issuing yuan-denominated bonds can also be considered a matter of prestige in terms of keeping up with the competition and trends. It’s also a very effective marketing exercise, one that automatically attracts immense attention from customers and media both in Asia and the West.”

“For foreign corporations with both offshore and onshore entities engaged in trade settlements, cheaper fund-raising costs offshore mean that it makes economic sense for funds to be raised in Hong Kong but spent on the mainland,” said Kwok.

The issuance of offshore yuan bonds in the first half totaled 83 billion yuan, up 89 percent from the whole of 2010. The total amount of offshore yuan bonds outstanding reached 147 billion yuan in the same period, according to reports from Deutsche Bank AG in July.

The bank has revised up its forecast for new issuance this year by 23 percent to 160 billion yuan and said it expects outstanding dim sum bonds to reach 230 billion yuan by the end of the year.

Fast economic growth in Asia and the expectation of yuan appreciation have attracted a lot of fund flows from all over the world, according to Vishal Goenka, Deutsche Bank’s head of local currency credit in Asia, who noted that monthly transactions of yuan bonds in the secondary market had reached 3 billion yuan by May, a far cry from the 200 million yuan recorded at the start of the year.

On July 18, Deutsche Bank also launched a tradable offshore yuan-bond index tracker, which monitors the performance of 42 yuan bonds at the initial stage, to boost its presence in the growing offshore yuan business.

A number of lenders, including HSBC Holdings PLC, Citigroup Inc, BOC Hong Kong (Holdings) Ltd and SinoPac Securities (Asia) Ltd have already launched indices for yuan bonds.

“The offshore yuan market is still in its infancy, and we expect growth to remain exponential,” said HSBC’s Hui, who estimates that by the end of the year the yuan deposit base will top one trillion and the gross issuance of bonds will reach as much as 230 billion yuan.

The rapid development of Hong Kong’s offshore bond market is expected to continue. At the same time, an increasing number of yuan-denominated investment products will be introduced and will flourish, according to HSBC’s Kwok.

“Not only will competition between these products gradually encourage higher yield offerings over time, but investors will become increasingly astute at differentiating between potential returns attributable to currency appreciation versus fundamental asset quality,” she added.

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04-Aug-2011

Office rents are set to soar by 22 per cent by the end of the year as booming conditions in the resource sector make their imprint in the Perth CBD, according to industry analysts.

The Property Council of Australia’s latest office market report showed the office market has tightened faster in Perth than in any other capital city, from 10.2 per cent in January this year to 7.8 per cent in June.

The council’s report showed total vacancy in Australian office markets dropped from 9.6 per cent to 9.0 per cent over the same period.

All of the CBD office markets surveyed experienced decreases in vacancy from the last period, with the exception of Sydney.

Net absorption of office space in Perth was 33,087sqm in the six months to June 30, the highest rate since January 2006 and almost four times the 20-year average.

CBRE senior director of office services Andrew Denny said options for tenants seeking spaced of 800 square metres or more were extremely limited not only in the CBD, but also in suburban office locations.

“We are starting to see rising rents as vacancies and incentives levels fall,” Mr Denny said.

“This will continue for the balance of 2011. We expect face rent increases of 10 per cent and effective rent increases of 22 per cent over the 2011 calendar year.

“2012 will see a pause, with significant backfill space entering the market, before 2013 sees future substantial rent increases on the back of falling vacancy levels.”

Mr Denny said the tight market conditions would likely prevail into the foreseeable future, with the low number new office buildings currently in the development pipeline.

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By Juliana Liu

2 August 2011

Washington may have averted a debt default by compromising on how to cut the US budget deficit, but underlying problems remain and those economic woes are driving a global search for an alternative reserve currency.

Officials, from the head of the International Monetary Fund (IMF) to the Philippines finance minister, have warned that the US dollar may lose its reserve status.

For China, the largest lender to the US and the world’s second biggest economy, the answer is close to home.

“I think the US debt crisis adds new urgency to the Chinese government’s efforts to promote the yuan as an international currency,” Zhang Ming, a Beijing-based scholar at the Chinese Academy of Social Science (Cass), tells BBC News.

“Promoting the international use of the yuan will become a way to reduce the country’s reliance on the value of US Treasuries.”

China holds more than $3.2trillion (20.6tn yuan; £2tn) in foreign exchange reserves, of which 70% is estimated to be in US dollars.

As the dollar falls in value against the Chinese yuan and other currencies around the world, because of the US’s financial problems, Beijing faces losses on its holdings.

And that threat may worsen if any of the world’s three main credit rating agencies decide to downgrade their triple-A rating for US sovereign debt.

Greenback or redback?

Mr. Zhang, who is deputy director of the Research Center for International Finance at Cass, says the global financial crisis of 2008 was the main external reason behind Beijing’s efforts to promote the yuan beyond its borders.

“Before the outbreak of the sub-prime crisis, the US dollar was considered a stable international reserve currency,” he says.

In July 2009, less than a year after the collapse of investment bank Lehman Brothers, Beijing announced a pilot programme allowing some companies to settle imports and exports with yuan.

That programme was expanded a year later, and continues to grow rapidly, though it is still only a tiny portion of China’s overall trade.

According to UBS Securities, trade settlement in the Chinese currency rose from just 18.4bn yuan ($2.86bn; £1.95bn) in the first three months of 2010 to 360bn yuan in the first three months of 2011.

China has signed so-called currency swap deals with Singapore, South Korea, Malaysia, Indonesia and Argentina, among others.

That means companies outside the mainland can borrow large amounts of yuan for doing business.

In August 2010, McDonald’s became the first foreign company outside the banking sector to issue yuan-denominated bonds, popularly known as dim sum bonds, in Hong Kong.

A massive, actively-traded debt market is a pre-requisite for any currency to become a reserve currency.

Relocations

In its efforts to promote the yuan, Beijing has chosen Hong Kong to be the principal launch pad.

According to the Royal Bank of Scotland, more than $70bn in yuan deposits are being held in the former British colony, and those assets are growing quickly.

Financial services veterans like William Nobrega from the US are taking notice.

He has just relocated his emerging markets consultancy, the Conrad Group, from Miami to Hong Kong in order to develop yuan-denominated bonds.

“We see the RMB (yuan) as an alternative to the US dollar,” he says.

“If the US suddenly developed the courage to have a massive reduction in our debt and massive investment in infrastructure and education, we would remain the world’s pre-eminent reserve currency, but, that’s probably not going to happen.”

Mr Nobrega’s clients include fund manager Craig Turnbull, chief executive of Agincourt Capital, who moved from London to Hong Kong in June in order to sell dim sum bonds.

His fund aims to raise $500m Australian dollars (US$542m; £333m) by the end of September, followed by another A$500m next year, for investment in Australian property.

Mr Turnbull’s investors would pay in yuan, which he believes will one day become a viable reserve currency.

“What is a reserve currency? Confidence is what it’s all about. It is, essentially, belief in the currency and the economy behind it,” he says.

Long march

For that, China will have to do more than simply maintain double-digit economic growth.

“The bottom line is that it is still too early for the RMB to become a major reserve currency,” says Wang Tao, an economist at UBS Securities.

She says that in addition to being widely accepted for trade, the yuan must also be widely used for finance and investment, which would imply the need for a much larger debt market.

That, in turn, means Beijing would have to allow lending and borrowing rates to more fully reflect market realities, rather than be so tightly controlled by the state.

Of course, the yuan would also have to be fully convertible for both trade and investment, and it must be allowed to float freely against other currencies.

And much more difficult than economic reforms, Beijing may have to consider making profound changes to its political system.

Global investors will demand transparent decision-making and government institutions, something China is far from achieving.

It is difficult to say exactly how long the entire process will take, but it could be a long march.

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By Kevin Soh 

HONG KONG, July 21 (Reuters) – Agincourt Capital has received expressions of interest for up to A$200 million ($214 million) for its yuan-denominated bond fund that aims to invest in Australian real estate, its chief executive said on Thursday.

The Agincourt Capital Australia RMB Fund plans to raise A$500 million this year and A$500 million in 2012, to invest in real estate in Sydney, Melbourne and Perth, Chief Executive Craig Turnbull said in an interview.  “All the macro-economic indicators in Australia are going very well,” said Turnbull. “Overseas, especially Chinese, interest is growing in Australia, and there is a serious shortage in commercial real estate.”

The fund adds to a growing range of investment uses for the fast-growing offshore yuan market in Hong Kong, which up to now has been largely limited to bonds and time deposits. Yuan outside of China’s borders cannot be brought back because it has a closed capital account. Expectations for yuan appreciation has driven growth of the Market, and Turnbull expects the Chinese currency to continue appreciating against the greenback in the next few years.

“The RMB has a long way to go against the U.S. dollar,” he said, referring to the currency by its other name, the renminbi. ”I can’t see why the U.S. dollar would appreciate, and the euro is in trouble, which leaves us with number three, the RMB.”  China should widen the daily band for yuan trades against the greenback to shield its economy from global financial market volatility, two government researchers said in remarks published on Wednesday.

Yuan deposits in Hong Kong’s banks have surged to more than half a trillion yuan ($85 billion) since trade in the currency was liberalised in July last year. However, total outstanding yuan bonds in the territory only amount to about 130 billion yuan, with most of the money placed with Bank of China (Hong Kong), which in turn moves it to the Chinese central bank.

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By: Matthew Sullivan

The Australian commercial market may soon see a flourish in investment activity with low prices and increasing tenant demand presenting real opportunities for investors.

According to Centuria Property Funds, investors looking to enter the commercial market should act now to take advantage of positive market conditions not seen for well over a decade.

“While it is near impossible to pick the bottom, or peak of any cycle, valuations in the property market are low, with prices at levels we’ve not seen in 15 years,” Centuria Property Funds chief executive Jason Huljich said.

Mr Huljich said the strong performance of the nation’s mining and resources sectors and high employment figures have led to increased demand for commercial property in certain locations.

“The pre-GFC period of inflated valuations has been corrected. We are now seeing more realistic valuations and falling vacancies, especially in certain areas where demand for quality office space is growing. This is fuelled by local conditions, for example the resources boom, and its knock on effect of greater demand for nearby support services – Brisbane being a case in point.”

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The exclusive event, which took place at the Four Seasons, Hong Kong was well attended by leading  professionals from the worlds of finance, investment management, banking, private equity, law, accounting, capital markets, and media.

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By Nichola Saminather

19-July-2011

Agincourt Capital, which last week introduced the first yuan-denominated bond fund to buy Australian real estate, said it plans to invest in A$500 million ($533 million) of properties by January.

The Hong-Kong based group expects to announce contracts on two buildings in the next two weeks, to be settled by October, and is seeking to spend the rest of the fund’s first capital by the start of 2012, Chief Executive Officer Craig Turnbull said.

“In the last three or four years, there’s been a complete lack of new supply of commercial property, not because there’s no projects, but because the funding is tight,” Turnbull said in an interview in Hong Kong yesterday. “In residential too there are great projects that can’t be funded. There’s all sorts of opportunities now.”

Agincourt introduced the fund on July 14, offering 3.5 billion yuan ($541 million) of five-year, 4 percent convertible bonds to take advantage of record yuan deposits in Hong Kong. The manager expects to raise the first A$500 million by the end of September, followed by a second A$500 million early next year, Turnbull said.

Agincourt is focusing on investments in office, mixed-use, and land developments, favoring office properties with leases of more than 10 years to corporate or government tenants that offer about 8 percent yield and average rental increases of 4 percent, Turnbull said.

Strategy

The group is aiming to invest about A$350 million of the first funds raised into “core” office properties that are well-leased with stable returns, and the remaining A$150 million into developments, he said.

“This allows us to go for smaller assets, A$30 million to A$50 million, which offer us higher returns,” Turnbull said. “We can blend that with a couple of larger assets and overall our yield is higher and our chance for uplift is higher.”

Agincourt, with offices in Hong Kong, London and Melbourne, charges a 2 percent management fee and will collect a 20 percent performance bonus if the investment fund produces a minimum return of 8 percent, Turnbull said on July 14 before a media briefing on the introduction of the fund.

It is now in due diligence to buy a multistage development in Queensland’s Gold Coast that was being developed by an overseas company, and is in early talks with a Brisbane developer on an apartment complex joint venture in the city, Turnbull said. He declined to name the properties, citing non- disclosure agreements the group has signed.

New Plans

Agincourt is also close to finalizing the purchase of a building in Perth with a 15-year lease to the Western Australian state government, and another with a 10-year lease to an international oil and gas tenant, Turnbull said without naming the properties.

Agincourt plans to triple its staff of four within a year, with about a third in Australia and the rest in Hong Kong, Turnbull said. It will introduce similar bond funds in China in early 2012 and Brazilin 2012 or 2013, and will expand its staff accordingly, he said.

This year’s sales of yuan-denominated bonds globally have more than doubled from a year earlier to 85.3 billion yuan, according to data compiled by Bloomberg. Thirty-two banks have arranged dim sum bond deals at least once this year, compared with 15 banks in 2010, data shows, and Deutsche Bank AG has started an index tracking the bonds as trading volumes surge.

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