China Construction Bank's dim sum bond to spark new international bank issuance
China Construction Bank's dim sum bond serves to promote London as an offshore renminbi hub while boosting the internationalization of the renminbi, say market players.
The move by China Construction Bank (CCB) to issue a dim sum bond out of London – the first Chinese bank to do so – should spur Citi, RBS and Standard Chartered to launch similar transactions to market London's status as a renminbi trading hub, says the head of a City steering committee.
The RMB1 billion ($160.56 million), three-year bond launched on Friday, with a yield of 3.3%, will be issued through CCB’s London outlet. The capital raised will be used to further develop CCB’s RMB business out of London.
“The bond issuance indicates the confidence CCB has in the London market," says Mark Boleat, chairman of the policy and resources committee at the City of London. Under Boleat’s chairmanship, the City has set up a steering committee to further develop London as an offshore RMB hub. The committee was set up on April 18 – the same day HSBC issued its first dim sum bond out of the city. The recent issue by CCB will spur on other banks to launch similar deals to build up pools of liquidity, says Boleat. “I do think it would be safe to say that international banks, such as Citi, RBS and Standard Chartered, would look to issue dim sum bonds out of London to build liquidity in the market and facilitate their business in Asia,” says Boleat. “I expect many more [companies] to dip their toes in the water.”
HSBC raised RMB2 billion from the issuance with 60% being placed in Europe. The landmark issuance attracted demand for more than RMB4.25 billion, highlighting Europe’s appetite for dim sum.
CCB’s dim sum bond will also bode well for the internationalization of the RMB, as the bond will help build up liquidity outside of China and Hong Kong, and encourage trade settlement in the currency, he says.
In a recent HSBC survey, 77% of those interviewed believed that by 2015 a third of all trade with China will be finalized in RMB and companies with a strong foothold in China saw value in using RMB for transactions. Just over half of respondents based in China said they would consider a discount to their trading partners for using RMB, and 41% of respondents were prepared to offer a substantial 3% discount, with some surveyed even willing to offer discounts of 7% or more.
In another push towards internationalization, Beijing opened up its capital markets to the international community further by extending its Qualified Foreign Institutional Investor scheme to $80 billion from $30 billion in April this year. A record $2.8 billion was issued to foreign investors in October this year alone.
However, at current levels, international use of the RMB lags behind China’s economic might. According to a report by the IMF, in 2011 China accounted for 10% in global trade, up from 4% in the previous decade, but only 8% of China’s total trade in goods and services were settled in RMB.