Standard Chartered to issue first commercial SDR bond in China
With no secondary market and their small size, the IMF’s SDR bonds are still primarily symbolic
Standard Chartered Bank said on Friday that it has obtained approval from the People’s Bank of China to be the first commercial issuer of bonds denominated in Special Drawing Rights (SDRs) in China’s interbank bond market.
The size of the issuance programme is 100 million SDRs – approximately 925 million yuan – and the bonds will be settled in yuan.
SDRs are an international reserve asset created by the International Monetary Fund. The value of the SDR is based on five currencies – US dollar, euro, Japanese yen, British pound, and, since October 1, the Chinese yuan.
“SDR bonds, to be settled in RMB, will help promote SDR financial instruments, provide a channel for investors to invest in foreign currency bonds in the onshore market, and offer more diversified bond products in the market,” said Standard Chartered Bank China’s head of financial markets Wesley Yang.
Standard Chartered Bank China has been appointed as the joint lead underwriter and joint lead bookrunner for the issuance.
“The SDR bond is a step in offering a fixed income product that captures multi currency exposure for Chinese investors ... but at this stage I think it’s more symbolic than anything else,” said Brett McGonegal, chief executive of capital link international.
“The impact of the bond is very small as the size is tiny in comparison to US dollar denominated bonds and the secondary market for SDR bonds is non existent since this is the first of its kind issued in over 30 years.”
The development of a secondary market for SDR bonds will be pivotal, due to the need for a mechanism to value the bond after it has been purchased from the underwriter, as well as in enabling greater institutional involvement.
“Until we see how the secondary market forms we will not be able to judge the success and value of the bond,” said McGonegal.
“The dim sum market proved to the world that those bonds were only retail in nature and offered no real secondary market thus forcing purchasers to hold until maturity. This was a great trade when the yuan was appreciating but turned into a disaster when it started to fall.”
On August 31 the World Bank was the first issuer of bonds denominated in SDR and settled in yuan when it sold 500 million SDR units worth of bonds.