CDB to issue 5-billion yuan RMB bond in HK

HONG KONG – China Development Bank (CDB) announced Tuesday that it will issue five billion yuan (US$657 million) RMB bond in Hong Kong, and this is the first Chinese currency bond to be launched outside the Chinese mainland.

The two-year bond, which will be synchronously sold to institutions and individual investors from June 27 to July 6, yields three percent annually. The return is relatively high compared to the 0.7 percent interest rate for six-month deposit here, with the anticipation of RMB appreciation.

The minimum subscription for an individual investor is 20,000 yuan, and at least one billion yuan of the bond is targeting at retail investors.

The joint lead managers and bookrunners for the bond issue are Bank of China (Hong Kong) and The Hong Kong and Shanghai Banking Corporation Limited. The distributors comprise of 14 placing banks with branches in Hong Kong, including Bank of Communications, China Construction Bank (Asia), Dah Sing Bank, and The Bank of East Asia.

The bond did not apply for independent ratings. CDB Governor Chen Yuan explained that despite the bank’s on-going market- oriented reform, CDB will adhere to its mission of helping to achieve the government’s goals, and “our debt rating will also remain intact.”

CDB is China’s largest policy bank and solely owned by the Ministry of Finance. It has been raising capital by issuing bonds since 1998, and has been given sovereign ratings by Moody’s, Standard and Poor’s and Fitch Ratings.

Analysts say both Hong Kong and the mainland could benefit from floating RMB outside the mainland.

“The issuance of RMB bonds here will strengthen Hong Kong’s status as an international financial center,” Ma Delun, assistant governor of the People’s Bank of China, said at the launch ceremony of the bond.

The issuance of renminbi bonds in Hong Kong signifies the city’ s role as the country’s premier international finance center, giving local investors more choice, said Henry Tang, financial secretary of the Hong Kong Special Administrative Region government, when addressing the ceremony.

“The arrangement is a fresh step in Hong Kong-Mainland co- operation,” he said.

Noting the renminbi is the fourth currency to go on the Real Time Gross Settlement (RTGS) System, Tang said this will facilitate the trading or the liquidity of the renminbi bond.

“Although the total amount of renminbi in Hong Kong is not very large, about 25 billion HK dollars, I think that with further co- operation and integration between Hong Kong and the Mainland in terms of financial and monetary instruments, the pool can only grow,” he said.

Tang said there is no plan to list renminbi bonds on the Hong Kong Stock Exchange because many of the brokers are not on the RTGS system.

He said if more companies can go on the RTGS system on the approval of Mainland authorities for renminbi transactions, then there will be better liquidity so it can be listed on the Hong Kong Stock Exchange.

Joseph Yam, chief executive of the Hong Kong Monetary Authority, said he believed that RMB businesses in the bond market may pave the way for similar businesses in Hong Kong’s soaring stock market.

“In Hong Kong, a free capital market, the price of RMB bonds will fully mirror international investors’ expectations of RMB’s revaluation, which is of reference value for the foreign-exchange reform of the Chinese currency,” said Yang Tao, a researcher with the Institute of Finance and Banking of Chinese Academy of Social Sciences.

Besides, the floating of RMB bonds outside the mainland will give China more say in pricing RMB derivatives, he said.

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