This article originally appeared in the Wall Street Journal.
By Fiona Law
HONG KONG—A U.K.-based asset-management start-up plans to sell what could be the first offshore yuan-denominated convertible bond, and intends to invest the money in Australia’s booming real-estate market.
Agincourt Capital Management seeks to raise the equivalent of about US$1 billion from the five-year bond, which would be convertible into equity in Agincourt, said Craig Turnbull, the firm’s founder and investment director. The bonds would be payable in Australian dollars
It would be the first yuan-denominated convertible bond sold outside of mainland China, Mr. Turnbull said, joining a flood of “dim sum” offshore yuan bonds seeking to capitalize on the rising Chinese currency.
Agincourt Capital, which was founded late last year, is targeting a return of 10% to 22% a year by investing in commercial and residential properties in Australia, Mr. Nobrega said. Home prices in Australia have quadrupled in a little more than 20 years, according to the Real Estate Institute of Australia.
A convertible bond typically is a corporate bond with an equity option embedded in it; bondholders can convert their debt into shares of the company at an agreed-upon price. This option allows the issuer to sell the bond with a lower interest rate than a straight bond.
In Agincourt’s planned yuan-denominated convertible offering, bondholders could convert into equity in unlisted Agincourt for the first three years, said William Nobrega, managing partner at U.S.-based real-estate consultant Conrad Group Inc., which is advising Agincourt Capital on the deal. The officials declined to specify what conditions would need to be met for investors to convert their bonds to equity or at what price.
Agincourt will seek to offer a yield of around 4%, payable in Australian dollars, and has hired Deutsche Bank AG and a Chinese bank to help arrange the issue, Mr. Turnbull said. He declined to name the Chinese bank. A Deutsche Bank spokeswoman declined to comment.
The fund wants to exploit the flood of offshore yuan and dearth of investments to put it into, Mr. Nobrega said. Strong demand for yuan investments means bond issuers can raise money at low interest rates.
Agincourt is targeting investors from mainland China and overseas who hold yuan and are looking for a strong return from Australian real estate. Mr. Turnbull said he has been in the Australian real-estate and financial-services industry for 25 years. Mr. Nobrega said converting the debt to Agincourt equity would give investors indirect ownership of Australian real-estate assets.
“We expect the majority of investors will convert into equity,” he said.
Issuance of offshore yuan bonds amounts to US$13.8 billion, according to data provider Dealogic, while yuan deposits in Hong Kong jumped fivefold in April from a year earlier to 510.7 billion yuan (US$78.8 billion), according to the Hong Kong Monetary Authority, boosted by expectations that the value of the Chinese currency will increase.
Agincourt expects the yuan and Australian dollar to rise hand in hand, Mr. Nobrega said, as the two countries’ economic ties get closer. “There’s no reason to expect that the Aussie dollar is going to do anything but appreciate, unless you think the world is going to stop using commodities,” he said.
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