Financial institutions to issue yuan bonds
International financial institutions are expected to launch their first-ever yuan-denominated bond issues this year to finance local projects and aid the development of China's bond market, according to a government source.
Asian Development Bank (ADB) and International Finance Corp (IFC) - the private sector investment arm of the World Bank - 'are in the process of submitting formal applications to the Ministry of Finance for the issues', the official said.
Contrary to recent press reports, the ministry has yet to formally approve yuan-bond plans by international financial institutions, although the State Council in August last year gave its blessing to the 'concept' of allowing so-called 'supranational' borrowers to sell yuan debt to mainland institutional investors.
'The proposed bond issues touch on a lot of technical issues that require new regulations,' the official said.
'The regulations are still being worked out.'
The bond sales will need clearance from a host of mainland government agencies aside from the finance ministry, including the People's Bank of China.
ADB and IFC issue local-currency bonds in various countries to help finance their activities.
IFC was the first supranational borrower to sell bonds in Columbian pesos, Israeli shekels, Estonian krooni, Russian rubles, and Singapore dollars. Lately, it became the first multilateral issuer of a Sharia (Islamic) bond in Malaysia.
IFC had invested a total of US$1.8 billion in 81 mainland projects as of June last year.
Last week, Dow Jones reported that the finance ministry had cleared ADB, IFC and Japan Bank for International Co-operation to raise a combined four billion yuan from maiden yuan debt issues, but the report has since been denied by relevant mainland officials.
The central government is nonetheless likely to give a formal green light to yuan debt issuance by the institutions soon as part of a co-ordinated policy initiative by central banks across Asia to promote the region's local-currency bond markets.
Despite high qualification benchmarks for corporate issuers and stringent restrictions on coupon rates, China's domestic bond market is now closing in on South Korea's as Asia's largest outside Japan.
The supranational issues are likely to be popular, analysts believe.
At debt's door
ADB and IFC to issue yuan-denominated debt this year
Regulations to allow such issues are still being worked out
China bond market No2 behind South Korea in Asia ex-Japan
