Offshore renminbi: Bank of China CEO gives London edge over Luxembourg
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Offshore renminbi: Bank of China CEO gives London edge over Luxembourg

CEO’s endorsement big boost to the City; renminbi bond issuance globally at record levels.

As competition between financial hubs mounts, London’s ambition to become the western destination of choice for offshore renminbi has received a boost from crucial market players, following a flurry of successful renminbi-related developments in the City.

London is the "offshore renminbi centre of choice in the west," according to Wenjian Fang, chief executive of Bank of China in the UK, speaking at a press roundtable with the City of London renminbi initiative.

Fang says: "In the long run, London will be much stronger than Luxembourg. If you look at what London has achieved in the last two years, it has been rapid. The key thing for the development of the fixed-income market is the investor base. And London has the unique advantage of having such a large investor base."

The renminbi market has already had an encouraging start to the year, driven in part by the Bank of China London branch, which became the latest bank to issue a renminbi-denominated bond out of the City. At Rmb2.5 billion ($413 million), the bond is the largest of its kind out of London so far.

Ashmore Group, an emerging market investment manager, was awarded the first RQFII licence out of London on January 7, the first investor outside Hong Kong to get an RQFII licence.

Two days later, CSOP, a Hong Kong-based asset management company, became the first renminbi exchange-traded fund listed on the London Stock Exchange, debuting with more than $230 million in assets after strong pre-IPO demand from investors. One of the main obstacles to the development of the renminbi, however, is that some fund managers and corporate institutional investors still haven’t given a large enough allocation to renminbi assets, says Fang. "But inevitably this will increase and London’s potential will come into full play at that time," he says.

The important vote of confidence for London comes despite the fact that three of China’s largest banks – China Construction Bank, ICBC and the Bank of China itself – chose to open their official European headquarters in Luxembourg, fuelling talk that the continental European city is outperforming London in the bid for Chinese capital.

At the end of the second quarter of 2013, Luxembourg had the largest pool of renminbi deposits in Europe, at about Rmb40 billion; the largest renminbi loan portfolio, at Rmb62 billion; and the largest trade-finance volume, at Rmb52 billion, according to consultancy PwC.

And according to Banque Centrale du Luxembourg, Luxembourg is also the largest renminbi investment fund centre in Europe, with some Rmb214 billion of assets – including debt, equity and other instruments – held in Luxembourg-domiciled investment funds.

"We don’t see London against everybody. Of course there is competition between financial centres, but there is strong collaboration between them," says Mark Boleat, chairman of the policy and resources committee of the City of London, who chaired the roundtable. "In the last three months I have been to Luxembourg and to Singapore. In both jurisdictions the talk was much more about the developing renminbi market globally and financial centres all playing a part in that."

London has taken several steps to court Chinese policymakers. In October 2013, it overturned apparently restrictive policies that discouraged Chinese banks from opening retail banking branches in the UK. In June 2013, the Bank of England, under pressure from the City, signed a currency swap line agreement with the People’s Bank of China, a move which appeared out of the question just over a year ago.

According to Dealogic, global offshore renminbi DCM volume reached a year-to-date record high of $2.9 billion via 10 deals in the first 20 days of this year, more than four times the $697 million issued via six deals in the same period last year.

Issuance for the first 20 days of January already stood at the second-highest monthly volume on record, just $353 million short of the highest monthly volume ever ($3.2 billion in November 2013)

FIG issuers accounted for $934 million of the global offshore renminbi bond issuance so far, while agency issuance reached $656 million.

Agricultural Development Bank of China’s $491 million-equivalent issue on January 9 is the largest global offshore renminbi bond to price this year. Other notable deals include Starway Assets Enterprises Inc (China Orient Asset Management Corp) ($410 million-equivalent) and Bank of China (London) (also $410 million-equivalent).

Export-Import Bank of Korea – Kexim’s $164 million-equivalent bond pricing on January 16 was the first offshore renminbi bond on record to price with two tranches listed in separate markets; a five-year tranche targeting global offshore renminbi investors and a 10-year tranche serving the Taiwan market as a Bao Dao bond.

Bank of China leads the global offshore renminbi DCM bookrunner rankings in 2014 year to date with a 62% market share, followed by Standard Chartered Bank and UBS with shares of 38% and 29%, respectively.

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