A growing number of foreign and Chinese companies are accessing the renminbi (“RMB”) bond market to fund projects, enhance liquidity and improve their working capital in China. These companies can raise capital while avoiding time-consuming IPOs, rights issuances and secondary offerings. It also offers a cheaper form of RMB financing to an issuer than that raised onshore1. An RMB bond offers investors (who have few options to invest in offshore RMB) exposure to RMB. The Hong Kong RMB bond market, also known as the Dim Sum bond market, is the first offshore2 market for Chinese currency investments and has increased significantly in the past few years. This eUpdate is part 3 in a series of eUpdates on this topic. Part 1 deals with laws and regulations applicable to, and features of, an RMB bond. Part 2 discusses points that an RMB bond issuer should consider. Part 3 deals with the documentation and issue process of an RMB bond.

Terms of the Bond

The terms and conditions of the bond set out all material terms, such as the rate of interest, maturity date, events of default, negative pledge (a covenant by the issuer not to secure its assets in favour of other lenders) and governing law (typically Hong Kong law). An RMB bond usually has a short tenor of three years or less, reflecting the expectation of investors of RMB appreciation as well as the preference of investors for a shorter tenor in the absence of long-dated, offshore RMB liabilities. As the market for RMB bonds develops, longer maturities of five and seven years will become popular.


The documentation for a bond issue usually includes the following documents:

  • Subscription/Underwriting Agreement: Between the issuer and the lead and co-managers under which the managers agree to purchase/find investors for the bonds, and the issuer gives representations, warranties, undertakings and indemnities to the managers. This agreement sets out the conditions precedent for the issue: legal opinions, auditors' comfort letters and no material adverse change in the issuer or in global financial markets.
  • Trust Deed: Between the issuer and the trustee setting out the ongoing covenants between the issuer and the trustee.
  • Fiscal or Paying Agency Agreement: Between the issuer and the paying agents setting out the provisions for the agents to make payment on behalf of the issuer under the bonds.
  • Offering Circular: Also known as the prospectus, this document is issued by the issuer and contains descriptions of the bonds, the taxation treatment of the bonds in the issuer’s home jurisdiction, the issuer’s business and the most recent two years’ audited financial statements together with any subsequent interim unaudited financial statements.

The Issue Process

  1. Preparing Documentation and Due Diligence

After the lead manager is appointed, it hires international and domestic law firms to conduct due diligence on the issuer and to prepare the legal documentation for the bond issue. The issuer hires law firms to represent it, negotiate the documentation and issue legal opinions on closing. The lead manager and the law firms participate in due diligence meetings with the issuer’s management to prepare the offering circular.

  1. Identify Legal and Regulatory Issues

The following issues are considered: domestic governmental or central bank approvals required for the issue of the bonds and making payments during life of the bonds; provisions under existing loan agreements which require the issuer to obtain consent from its existing bank lenders for the issue; withholding tax or stamp/registration taxes payable on issuing bonds and making interest/principal payments.

  1. The Stock Exchange

The law firms send the draft offering circular to the relevant stock exchange or its regulator for review and comment; the issuer arranges to pay the listing fees and execute listing undertakings.

  1. Roadshows

Once due diligence is complete, the lead manager takes the issuer on a roadshow to the major global financial centres to meet potential investors. A near-to-final draft of the offering circular (commonly referred to as a red herring) is given to potential investors. During the roadshows the lead manager builds a book of preliminary orders from potential investors.

  1. Launch

After the roadshows, the lead manager agrees pricing for the bond issue with the interested investors and the issuer, and then formally launches the issue, publishes details on Bloomberg and confirms the orders with investors; this is the formal selling stage of the issue.

  1. Signing

Once the orders are confirmed with investors, the managers and the issuer execute the subscription agreement and the issuer issues the offering circular setting out the agreed pricing: issue price, size of issue, maturity date and the interest rate.

  1. Closing

Three days after signing, the issue “closes:" the conditions precedent are satisfied (trust deed and paying agency agreement executed; legal opinions and auditors’ comfort letters are issued, etc.); the investors pay the purchase price to the lead manager, which deducts its underwriting fees and expenses and pays net proceeds to the issuer; the issuer executes the global bond and delivers it to the sub-custodian for the CMU; the investors’ accounts at the CMU are credited and trading in the bonds commences; the relevant stock exchange admits the bonds to listing; and the issue is closed.