RBS plans focus on 'dim sum' market

PUBLISHED : Thursday, 23 February, 2012, 12:00am
UPDATED : Thursday, 23 February, 2012, 12:00am

The UK government-controlled Royal Bank of Scotland (RBS) is bailing out of equities in Asia and going big on bonds, in particular those denominated in offshore yuan.

The bullish bet on the mainland currency underscores growing confidence in Beijing's ambition to further internationalise the yuan in the coming years.

The Edinburgh-based RBS, which was rescued by British taxpayers in the 2008 financial crisis and is now 83 per cent government owned, plans to focus on the fast-growing market in yuan-denominated - or 'dim sum' - bonds. The bank is also expected to play a key role in furthering Britain's aim to copy Hong Kong's success and make London an offshore yuan-trading centre for Europe.

Manfred Schmoelz, head of transaction services origination for RBS in Asia-Pacific, told the South China Morning Post that he hopes London and Hong Kong can set up a 'common platform' for offshore yuan trading to beef up global volume and better meet client demand.

'Europe is a big investor into the Asia region and China,' said Schmoelz, who joined RBS about half a year ago from Deutsche Bank, where he served for more than two decades. 'If they can use the London window with the partnership with Hong Kong, I think both cities should have great chance to establish themselves in that market.'

Chinese companies were also rushing into the European market and demands for capital-raising in the debt market to support their international business expansion were growing rapidly, he said.

In the past decade, many major Chinese companies have issued stock to raise capital in three different markets - Hong Kong, New York and Shanghai. Schmoelz said the way Chinese companies raised money through dual listings in global stock markets could happen in the offshore yuan market too, with the bonds traded in both Hong Kong and London in the future.

'When you do a bond listing in Hong Kong, you can also do a London listing,' he said. 'Then you have more accessibility when you can buy bonds in Hong Kong from London. That's how you create depth. That's how you create a market.

'I believe it is a right approach to develop a common platform, because at the end of the day, what issuers are interested in is accessibility.'

RBS launched a London-based China desk last week. The new China-dedicated team will serve both Chinese corporate clients with interest in Europe and European companies that do business in China. Schmoelz described such corporate services as 'the future for RBS'.

RBS is selling its Asia equities business to save costs for the loss-making group. Schmoelz rejected some industry speculation that RBS may want to quit the capital market in Asia. Instead, he said RBS would allocate more human and capital resources to its debt business.

RBS was one of the book-runners helping the China Development Bank to sell 1.5 billion yuan (HK$1.85 billion) of off-shore yuan bonds last month.

It also helped Macau gaming group Melco Crown Entertainment to issue 2.2 billion yuan worth of off-shore yuan bonds in April. These were the two biggest offshore yuan bond sales the bank had undertaken, according to data from Dealogics.

RBS's new China desk in London was also considered part of the United Kingdom's efforts to establish an offshore yuan market in London fast, Schmoelz said.

Britain and China announced late last year that they had agreed to work together to develop an offshore yuan market in London, although details, such as currency settlement, are still being negotiated. RBS analyst Woon Khien Chia said she expected London to be a clearing centre for yuan by the end of the year.

Sales of dim sum bonds reached US$14 billion in Hong Kong last year, almost three times the US$5.4 billion sold in 2010. The number of issuances rose to 84 from 17 during the same period a year earlier, according to Dealogics. So far this year, Hong Kong has sold US$1.1 billion worth of dim sum bonds in six issuances.

London is not alone in the race to build an offshore yuan-trading hub. Singapore has also showed strong interest in the business.