First sovereign bond sale outside mainland in HK
The Ministry of Finance yesterday said it would sell six billion yuan (HK$6.81 billion) in yuan-denominated bonds in Hong Kong, the nation's first sovereign bond sale outside the mainland, in a move to internationalise the currency and promote the city as a financial centre.
The sovereign bond issue could encourage more mainland institutions to issue yuan debts here, the ministry said.
The bonds will go on sale to retail and institutional investors on September 28, just before the 60th anniversary of the People's Republic on October 1.
'It will strengthen the development of the offshore yuan business in Hong Kong, promote the circulation of the yuan in nearby countries and enhance the international status of the yuan,' the ministry said yesterday on its website.
Since June 2007, there have been 10 yuan bond issues totalling about 32 billion yuan in Hong Kong by lenders such as China Development Bank, Bank of China and the mainland units of Hong Kong lenders including HSBC Holdings and Bank of East Asia.
Chim Pui-chung, a legislator representing financial services, said the finance ministry was using Hong Kong as a testing ground for the internationalisation of the yuan.
'The mainland currency will widely circulate around the world, it's just a matter of time,' he said, adding that allowing the yuan to move outside the mainland step by step could help its internationalisation.
He expects Beijing to issue more sovereign bonds in the city.
Financial Secretary John Tsang Chun-wah said he expected the bond to be well received. He called the sale a milestone in the development of the yuan business that would also enhance Hong Kong's financial status.
Billy Mak Siu-choi, an associate professor at Hong Kong Baptist University, said: 'Hong Kong will be the only place for people to participate in yuan-related investment if the mainland currency remains under foreign exchange control.'
Banking sources said the yuan bond would have three tranches of two years, three years and five years, with the interest rates to be set later.
The Hong Kong Monetary Authority has informed banks that they can simplify the sales process for the yuan bonds. No audio recording will be required for the client risk profiling session as the nature of bonds and the risks are relatively simple and easy for investors to understand.
Stanley Wong Yuen-fai, an executive director of ICBC (Asia), expects investors to be interested in the sovereign bonds even if the interest rate is low because of their high credit rating compared with previous yuan bonds issued by commercial banks.
Wong said Hong Kong needed more yuan circulation for the development of a deeper yuan bond market. Hong Kong's yuan deposits stood at 55.89 billion yuan at the end of July.
The yuan rose to 6.8275 to the US dollar yesterday, the highest since June 3.
Additional reporting by Paggie Leung
