Investors rush for yuan bonds in Taiwan

Four mainland banks see 6.7 billion yuan of Formosa notes snapped up in their first sale on the island, raising hopes for more issuance

PUBLISHED : Tuesday, 10 December, 2013, 2:56am
UPDATED : Tuesday, 10 December, 2013, 2:56am

Taiwan's first yuan debt offerings by four big mainland banks have been snapped up, opening the floodgates for up to 60 billion yuan (HK$76.5 billion) of fundraising as Beijing looks to strengthen the island's role in the drive to internationalise the yuan.

Bank of Communications, Bank of China, China Construction Bank and Agricultural Bank of China raised a combined 6.7 billion yuan from the so-called Formosa bonds, which begin trading today.

The successful bond sales in Taiwan, which is sitting on a pile of 123 billion of yuan deposits, have whetted mainland firms' appetite for more debt issuance on the island.

Analysts said the size of Formosa bonds could top 60 billion yuan in two to three years as the mainland and Taiwan consolidated their economic ties.

"In Taipei, there's a huge yuan asset pool but limited usage of the deposits," said Zhang Weizhong, the head of the treasury department at Bank of Communications in Hong Kong. "It creates a good opportunity for mainland firms' fundraising."

Shanghai-based Bocom was the first mainland firm approved to sell Formosa bonds after Taiwan deregulated the market to welcome mainland corporate borrowers.

Taiwan earlier allowed only non-mainland firms to sell yuan bonds but reversed the policy last month, giving Bocom, the mainland's fifth-largest lender, the clearance to offer yuan debt.

Beijing and Taipei signed a landmark pact on currency clearing in August last year, which acknowledged Taiwan's role as an offshore yuan market. Yuan deposits have been growing rapidly on the island in step with rising trade and investments between the two sides.

Total yuan deposits in Taiwan are estimated to reach 300 billion yuan in two to three years.

Analysts said the issuances by the four mainland lenders would revive the island's yuan bond market as mainland firms flocked to Taiwan to raise funds because of low borrowing costs there.

Buyers of the bonds include banks, insurers, brokerages and trust firms.

Bocom's three-year notes worth 800 million yuan carry an interest rate of 3.4 per cent while its 400 million yuan five-year bonds were offered at an interest rate of 3.7 per cent, far lower than borrowing rates on the mainland.

A yuan debt craze in Taiwan, however, would not be a threat to Hong Kong's role as the dominant offshore yuan market. Hong Kong's yuan deposits still have a wider access to the mainland market and assets.

Apart from dim sum bonds, yuan assets in Hong Kong can be ploughed into the renminbi qualified foreign institutional investor scheme to invest in mainland equities and bonds.