New bond sale pushes HK as offshore yuan centre

PUBLISHED : Tuesday, 23 November, 2010, 12:00am
UPDATED : Tuesday, 23 November, 2010, 12:00am

The mainland will issue bonds worth 8 billion yuan (HK$9.34 billion) in Hong Kong to create more yuan investment products and promote the city as an offshore yuan centre.

Following the 6 billion yuan initial bond issuance in September last year, the new sale will see 5 billion yuan of debt offered to institutional investors and 3 billion yuan to retail investors.

The Ministry of Finance plans to use the Dutch auction method, otherwise known as an open descending price auction, in which the auction begins with a high price that is lowered until a bidder emerges. Institutional investors can buy from 2 billion yuan worth of three-year bonds, 2 billion yuan of five-year bonds and 1 billion yuan of 10-year bonds.

The tender date for the bond issue is November 30 and the settlement date is December 1.

The issuance will be made through the Central Moneymarkets Unit (CMU) operated by the Hong Kong Monetary Authority, which hopes to set this as a foundation for the tendering and issue of yuan sovereign bonds. 'We also welcome foreign companies to use the CMU as a platform for bond issuance,' an HKMA spokesman said.

The Ministry of Finance appointed the Hong Kong branch of Bank of Communications as the lodging and paying agent to administer the tender of the bonds on its behalf.

Shou Fugang, the chief executive of Bank of Communications, said that by offering a 10-year bond for the first time, the ministry would provide a new benchmark and a full-range yield curve in the offshore yuan bond market. 'With more products, the secondary market will become more active,' he said.

Shou and an HKMA spokesman said they were optimistic about the market reaction, as liquidity and yuan reserves were on the rise. Yuan deposits in Hong Kong more than doubled to a record 149 billion yuan in the six months to September, according to the HKMA.

Carmen Ling, the head of Hong Kong global transaction services at Citibank, said the bond should be welcomed by investors, given that it is issued by a high-rating sovereign bond issuer.

The HKMA said it chose to use the Dutch auction process in the hope of ensuring reliable and efficient price discovery. All the bidders must be CMU members, the majority of which are local financial institutions, and a small proportion of foreign investors, said the HKMA spokesman.

HSBC said it applied for CMU membership last week and is waiting for approval.

Breaking new ground

The central government's latest bond issue, which for the first time includes a 10-year bond, amounts to, in yuan: 8b yuan