IFC plans offshore RMB duration play
Buoyed by its Indian success, the World Bank’s private-sector arm the International Finance Corporation (IFC) has set its sights on further extending the offshore renminbi curve.
The IFC is looking to extend its offshore remninbi curve to seven or 10 years by June, underscoring efforts by official-sector issuers to boost the internationalization of the renminbi.
In September, the IFC issued a five-year RMB1 billion offshore renminbi deal through BNP Paribas, ICBC and Standard Chartered, making it the longest-dated Chinese currency deal from an AAA-rated borrower listed in London, according to Euromoney’s sister publication Global Capital.
Ben Powell, the IFC’s head of funding, tells Euromoney a further extension of the RMB curve should be possible by the end of this financial year.
“Our hope is to extend the RMB curve to seven or 10 years, but this won’t be easy because as you extend duration the pool of investors shrinks," he says. "Nevertheless, we believe there are Asian investors out there, particularly banks, who would be attracted to a triple A-rated asset.”
Central banks – the typical investor base for short-rated triple A-rated SSA paper – would likely snub a long-duration RMB deal, Powell says. However, strong demand from Asian financial institutions for a Level 1 asset should power the deal inside the offshore curve of the Chinese government, rated AA-.
He adds: “As an issuer, we might be seen as expensive and Asian banks have other higher-yielding options in the offshore and onshore markets, but we offer diversification value and a triple-A rating.”
The deal would require an inter-bank quota from the People’s Bank of China to allow the IFC to reinvest proceeds of the deal onshore.
Powell says: “Rather than just relying on the basis swap market, we are, generally, in our local-capital-raising programmes trying to reinvest proceeds onshore to give us the flexibility to opportunistically invest in projects.”
In fiscal year 2013, IFC issued a record $500 million in local-currency bonds, but the 2014 fiscal year has already seen some $2 billion of issuance – compared with $16 billion of hard-currency deals – driven by a programme of $1 billion in offshore rupee and more than $300 million in offshore renminbi.
In other comments, Powell says the IFC has built up internal trading capacity to source bonds when investing the proceeds of a given local-currency deal post-execution, making it less reliant on syndicate banks.
In 2012, the IFC announced a pan-African domestic medium-term note programme, with up to 12 African countries, with deals from Zambia and Nigeria last year and Rwanda in May.
According to bankers, the complexity of local regulations has delayed further issuance from this programme to-date. Asked whether the IFC could build an offshore naira curve, Powell cited a current lack of demand for such an issue, despite the prospect of a high coupon rate.