HSBC launches London’s first offshore yuan bond

HSBC raised 2 billion yuan ($317 million) from the first international issue of a “dim sum” bond, hailed as a milestone in London’s efforts to become a centre for offshore yuan trading alongside Hong Kong.

* HSBC raises 2 bln yuan from sale of 3-year bond

* First “dim sum” bond issued outside China, attracts firm demand

* London launches working group to promote itself as yuan centre

* Hong Kong enjoys big lead as offshore yuan centre

By Pete Sweeney and Isla Binnie

SHANGHAI/LONDON, April 18 HSBC raised 2 billion yuan ($317 million) from the first international issue of a “dim sum” bond, hailed as a milestone in London’s efforts to become a centre for offshore yuan trading alongside Hong Kong.

Europe’s biggest bank launched the yuan-denominated bond to coincide with the launch by the City of London Corporation of a working group including five major banks to develop the city into a major centre for offshore yuan business.

“What’s changed is that there is an awareness in China of the need to deepen the international market for the RMB (renminbi), which the UK has tapped into,” said Nigel Pridmore, partner at law firm Linklaters.

“The process is off and running, it would be hard to put the genie back in the bottle now.”

The charm offensive was led by British finance minister George Osborne, who said London would complement Hong Kong as an offshore centre.

“It is the ambition of the British government to make London a western hub for the sector – with all the benefits that this will bring to our own economy,” Osborne said in a speech.

HSBC, a member of the new working group, will issue bonds worth 2 billion yuan, double the bank’s initial guidance on how much it planned to raise, and attracted demand for more than 4.25 billion yuan.

The three-year bond was mainly targeted at European investors and will pay annual interest of 3 percent.

HSBC has been a leader in the dim sum bond market in Hong Kong, which has seen explosive growth as China allows more avenues for yuan funds to flow across its borders and slowly internationalises its currency.

HSBC leads the league tables as a book runner for dim sum bonds in Hong Kong, having led 48 issues so far this year with proceeds of 13.9 billion yuan as of April 12, according to Thomson Reuters data.

“There’s already a growing yuan deposit base in London, and HSBC probably wants to be first to capture that market,” said Patrick Pong, an analyst at Mirae Asset Management in Hong Kong.

More European banks and companies are expected to follow HSBC’s move, offering investors access to the Chinese currency closer to home. HSBC was joined by Standard Chartered, Barclays, Deutsche Bank and Bank of China at the London event.

“All 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,” said HSBC CEO Stuart Gulliver.


London and other financial centres like Singapore are seeking to capitalise on the rapid growth of the offshore yuan bond market in Hong Kong since its launch less than two years ago, as investors aim to put their yuan deposits to work by buying high-yielding yuan bonds.

Hong Kong, the leading offshore yuan centre, is cooperating with them in doing so, and the Hong Kong Monetary Authority in January agreed with Britain to co-operate on offshore yuan trading, including the HKMA extending the operating hours of its renminbi settlement system into the London day.

London still has a long way to go before its dim sum market can compete with Hong Kong’s in terms of volume, but it is confident it can become the leading yuan hub outside China, helped by its time zone and status as the top city for foreign exchange trading.

Customer and interbank yuan deposits in London totalled 109 billion yuan at the end of 2011, according to a report published by the City of London Corporation in conjunction with the launch of the working group.

However, that is far less than the 566 billion yuan in renminbi deposits in Hong Kong as of February, suggesting Hong Kong will remain the most important offshore yuan centre for some time to come.

Other banks are also said to be planning to tap the London market to issue yuan-denominated debt, including Agricultural Development Bank of China, China Development Bank and the Export-Import Bank of China.

“For more dim sum bonds to come, the pool size (in London) needs to be increased,” said Kelvin Lau, regional economist at Standard Chartered.

HSBC’s move follows significant currency reforms by Beijing, including a widening of the yuan’s trading band to 1 percent from 0.5 percent that went into effect on Monday. The change takes China one step closer to its goal of having a basically convertible yuan by 2015.

“The Chinese will do it (open up their currency and markets) as and when they are ready. Everyone in the west wants it done yesterday, and the Chinese are opening up their capital account in the time that suits them,” said David Bloom, head of foreign exchange strategy at HSBC.

Linklater’s Pridmore added: “The international use of the RMB will grow inevitably, it’s a long-run thing. Not next year or in two years, but the yuan will join the euro and dollar as a reserve currency.”

Chinese regulators this month also increased the quota for the Renminbi Foreign Qualified Institutional Investor (RQFII) programme, which allows Hong Kong investors to purchase yuan-denominated funds using yuan accumulated offshore, to 70 billion yuan from 20 billion yuan.

The groundbreaking deal is expected to be rated Aa2/AA- (Moody’s/S&P), the same as HSBC Bank’s own rating of Aa2/AA-/AA (Moody’s/S&P/Fitch).

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