Retail slice of yuan bonds in Hong Kong slashed

Institutions gain bigger share of new 23b yuan issue, with a 30-year offering included

PUBLISHED : Monday, 10 June, 2013, 12:00am
UPDATED : Monday, 10 June, 2013, 5:03am

The Ministry of Finance said it plans to issue 23 billion yuan (HK$28.9 billion) of offshore yuan bonds in Hong Kong in two batches this year.

The total issue size remains the same as last year but the amount available for the public has been slashed to 3 billion yuan from 5.5 billion yuan last year.

The first batch, of 13 billion yuan, will be issued on June 26, targeting institutional investors. For the first time, these will include bonds with a tenor of 30 years, the longest for bonds issued by the Ministry of Finance offshore. The second tranche of 10 billion yuan of dim sum bonds will be issued in the second half. Of these, bonds worth 7 billion yuan will be sold to institutional investors and the rest to local residents.

Woody Chan, an executive vice-president and treasurer at China Citic Bank International, said fewer bonds had been earmarked for the public due to lower retail demand last year.

The retail dim sum bonds had a tenor of two years and offered a coupon rate of 2.38 per cent last year. It was oversubscribed 2.2 times, compared with around three times the year before. Beijing is yet to provide the details on tenor and coupon rate for the retail tranche this year.

Chan said the yuan interest rates in Hong Kong had risen from last year because of the availability of more investment opportunities, but the interest rate in the onshore market had fallen because of interest rate liberalisation. "The final decision on the coupon rate on retail dim sum bonds this year is quite uncertain," he said.

The bonds would be listed on the Hong Kong stock exchange, the Ministry of Finance said. Some 500 million yuan of bonds would have a tenor of 30 years.

Raymond Yeung Yue-ting, a senior economist at ANZ Banking, said the mainland government was "testing the waters" with the long tenor.