This timelast year China's nascent dim sum bond market was a roaring successstory, but how has the market fared over the last 12 months?

Dim sum bonds are bonds denominated in the Chinese renminbi, oryuan, but issued outside of the Chinese mainland. They're alsoknown as CNH bonds—CNH is the symbol for renminbi traded outside ofChina.

The first dim sum bonds were sold in 2007 by Chinese financialinstitutions, but the market didn't really take off until 2010,when the People's Bank of China removed restrictions that hadbarred certain types of issuer from the market. Chinese corporatesbegan issuing dim sum bonds, and in August 2010, McDonald's became the first foreign corporate issuer, with a200-million-renminbi bond.

Other foreign names followed, including a 350-million-renminbiissue by Yum! Brands, a 1-billion-renminbi issue by Caterpillar anda 1.5-billion-renminbi bond by Volkswagen. Throughout 2011,companies were attracted by the low funding costs associatedwith the market—Unilever sold three-year bonds with a 1.15%coupon—as well as the opportunity to access new sources ofliquidity. Despite the low returns, investor demand was high,reflecting expectations that the renminbi was due toappreciate.

Issuance last year totaled 108 billion renminbi ($17.1 billion),up from 35.7 billion renminbi in 2010 and 16 billion in 2009.

Early this year, however, the pace of growth began to falter, asthe Chinese currency took a beating.

“During the first half of the year, when therenminbi was depreciating against the U.S. [dollar], demand for dimsum bonds fell,” says Ashish Malhotra, head of Asia Pacific debtsyndicate at Bank of America Merrill Lynch. “On the supply side,CNH cross-currency swap levels were low, which meant that the priceof borrowing remained higher than in U.S. dollars for foreignissuers. At the same time, rates were being cut onshore, loweringthe incentive of onshore borrowers to issue in CNH.”

There are signs that this may have been a temporary setback,however. Issuance has begun to rise in the last couple of months.“Since August, we have seen the market pick up again as the CNH hasbegun to appreciate against the U.S. dollar and CNH cross-currencyswap levels have risen on higher inflationary concerns,” Malhotrasays. With issuance so far this year exceeding 64 billion renminbi($10.2 billion), the total for 2012 could still exceed the 2011figure.

Meanwhile, dim sum bonds are coming to market outside of HongKong, particularly in London. The UK's ambition to position Londonas an offshore renminbi trading hub has enjoyed some success:Energy group BP issued a 300-million-renminbi dim sum bond inLondon last year, and in April HSBC's 2-billion-renminbi three-yearissue aimed specifically at European investors was oversubscribedwith orders of 4.4 billion renminbi. Last month ANZ Banking Groupfollowed suit with a 1-billion-renminbi three-year bond listed inLondon.

For more on doing business in renminbi, see Yuan Market Grows in Hong Kong and Paying Suppliers in RMB.