Bond issues in HK may dip below 10b yuan
Yuan-denominated bond issues next year could be lower than the 10 billion yuan record this year due to Beijing's macroeconomic measures to curb the overheated economy.
Forrest Li Shulin, head of China debt finance at HSBC, however, said the long-term development of the yuan bond market in the city would not be affected.
Mainland lenders were allowed for the first time to issue yuan bonds in Hong Kong this year, a move analysts expect could pave the way for Hong Kong to become an established yuan offshore trading centre.
A total of 10 billion yuan in bonds has been issued by three mainland lenders since July, attracting good response.
'Mainland authorities may not allow too many institutions to issue yuan bonds in Hong Kong next year,' he said, adding that the total issue size being approved could be similar or slightly less than this year's.
Beijing has been taking measures to prevent an excessive capital inflow into the country in order to avert economic overheating and curb inflation.
He said the regulatory authorities had to consider government policy when processing applications from domestic lenders to issue yuan bonds in Hong Kong. 'To allow more yuan bond issues in Hong Kong may contradict the policy.'
He added it was important to encourage the development of the product, and the infrastructure in Hong Kong was in place to provide support as more offers became available. 'More issues could be approved [by Beijing] if the macroeconomic measures achieve the desired results faster than expected.'
Mr Li agreed that there were still other challenges that Hong Kong had to face in the development of the yuan bond market.
Issuers have to obtain approval, including for the size of bond issues, from mainland authorities. Hong Kong's retail investors have a daily yuan exchange limit and only banks are qualified as institutional investors for subscription to the bonds.
However, Mr Li said that regulators and banks in the city were continuing to lobby mainland authorities for further relaxation of rules amid increasing demand for yuan products as the currency continued to appreciate.
'Daily turnover in the secondary market is around three to four million yuan, mainly traded by retail investors,' he said.
Mr Li noted that the yuan bond issued by China Development Bank in August, in which HSBC was one of the joint lead managers, was actively traded on the market.
Investors would have achieved a 6 per cent return on the China Development Bank bond issue if they subscribed to the bond when it was launched.
Meanwhile, he said at least four to five mainland lenders were planning to issue yuan bonds in Hong Kong in the hope of raising their profiles.
Another incentive for mainland lenders to issue yuan bonds in the city is the cheaper costs associated with fund-raising in Hong Kong.
Mainland financial institutions need to obtain the approval from the People's Bank of China before they can issue yuan bonds in Hong Kong.
