London Taps HSBC Bond Issuance As A Key Step To Become An Offshore Yuan Center

2020

By Leo Zhang

HSBC has raised 2 billion yuan (US$317 million) in London first Dim Sum bonds issue April 18, marking a key step in the city initiative to become a center for offshore yuan trading.
The issue was the first yuan debt sale outside Chinese territory, although Hong Kong has been benefiting from China Dim Sum bond program in the past two years thanks to investors enthusiasm to buy high-yielding yuan debt.
On the same day, a working group of five major lenders, including HSBC, Deutsche Bank, Standard Chartered, Barclays and Bank of China, also announced they would team up to develop London into a major hub for yuan trading. Members will follow suit to sell yuan products in London.

The sale by HSBC was warmly welcomed in Europe, where investors bought 60 percent of the three-year debt. Hong Kong investors accounted for 20 percent with 15 percent of the orders coming from Singapore and the remainder from the Middle East. The bonds will pay an annual interest of three percent.

This represents another step in London development as a premier international trading center for the renminbi and is an early sign of the huge potential that this market represents, HSBC Chief Executive Officer Stuart Gulliver said in a statement.

Speaking at HSBC bond release event, UK Chancellor of the Exchequer George Osborne said he hopes to see more Chinese companies issuing bonds and products in the city. e are not prepared to let anyone steal a march on us when it comes to new products and new markets, Osborne said. n the coming decades it is China that will act as a powerhouse of the world economy.

In addition to the members of the banking working group, Chinese lenders, including the Agricultural Development Bank of China, China Development Bank and the Export-Import Bank of China, are reported to be planning to issue yuan bonds in London.

ll of us will be bringing new issuers to this market, tapping into a pocket of liquidity where investors have the opportunity to diversify from what they are currently doing, which is often holding deposits, Mr. Gulliver said in an official statement.

Institutions in the UK have more than 109 billion yuan of customer and interbank deposits in the Chinese currency in London, according to a policy paper by research firm Bourse Consult. But this figure is still far less than the 566 billion yuan in renminbi deposits in Hong Kong as of February.

Compared with Hong Kong, London advantages lie in its status as the world top foreign exchange trading center. Besides, it also features a time zone that can connect businesses in America, Europe and Asia.

Also this month, China widened the yuan daily trading band to 1 percent from 0.5 percent, a step seen by many analysts towards more market-based movement of the currency. Earlier media reports cited unidentified Chinese government sources as saying that the country hopes to have a basically convertible yuan by 2015.

Yuan bond sales in London will create a platform for wider use of the Chinese currency and will gradually attract a wide range of investors, including Chinese living overseas, Michael Wei, an investment consultant with Bank of China, told Asia Outbound. hat will also be positive for Chinese entrepreneurs and companies with global presence. Raising yuan funds in an overseas market looks exciting. When the market eventually grows in size, it could offer a shot in the arm to smaller Chinese firms with solid business fundamentals.