Bank of China plans to launch yuan bonds in Luxembourg

Lender marketing the first yuan bonds to be listed in the euro zone by a Chinese company

PUBLISHED : Thursday, 08 May, 2014, 11:18am
UPDATED : Friday, 09 May, 2014, 12:20am

Bank of China has returned to the market to raise funds and is marketing its first euro-zone-listed, yuan-denominated bond to be traded in Luxembourg.

The mainland's third-largest lender started marketing the notes at a yield of 3.7 per cent yesterday morning, according to two bankers close to the deal. Proceeds from the sale are expected to be retained in the local branch to support corporate activities, one banker said.

The bonds, the first to be listed in the euro zone by a Chinese firm, will be issued by BOC's Luxembourg branch and carry a maturity of three years. In January, the bank sold 2.5 billion yuan of a three-year bond in London at 3.45 per cent.

Chinese banks face pressure to raise funds to withstand an expected rise in bad loans.

The transaction is a step forward in the internationalisation of the currency and in Luxembourg's ambition to catch up with London as a centre for Chinese investment products in Europe.

Demand is likely from central banks eager to diversify their currency holdings, as well as large insurance firms and commercial lenders, a banker close to the deal said.

Luxembourg is the third city outside China where the state-backed bank has chosen to issue an offshore yuan bond.

In January, BOC issued 2.5 billion yuan worth of bonds in London, and in February it issued three billion yuan of "Lion City" bonds in Singapore. The issuances are seen as part of Beijing's efforts to encourage financial centres around the world to develop offshore yuan business.

Bank of China, Credit Suisse, Deutsche Bank and ING are joint bookrunners and lead managers for the deal.

Four European cities - London, Paris, Luxembourg and Frankfurt - are sparing no effort to launch Chinese investment products in a race for a bigger share of the growing offshore yuan business, which is still dominated by Hong Kong.

Paris and London have each been given 80 billion yuan of investment quota to allow locally registered firms to invest yuan in mainland China's stock and bond markets, but Luxembourg has yet to obtain a quota.

London and Frankfurt signed agreements in March with the People's Bank of China to clear payments made in yuan locally, and both cities are in the process of appointing a clearing bank.