A big leap forward for renminbi debt markets could come as soon as next week, as the UK gears up to become the first sovereign outside China to sell an offshore renminbi bond
The UK Treasury is holding an investor presentation in London on Monday, as well as holding an internet roadshow, ahead of a debut renminbi bond that will mark the first sovereign renminbi denominated bond outside China. A deal could come soon as next week if market conditions allow, Emerging Markets understands.
The UK Treasury, as opposed to the UK Debt Management Office, has mandated three banks to run its debut offshore renminbi deal: Bank of China, HSBC and Standard Chartered. Size and tenor will depend on market conditions but Chancellor of the Exchequer George Osborne said in September that the target size would be about Rmb2bn ($326m).
Supranational and agency issuers that have printed offshore renminbi bonds before, such as the International Finance Corporation and Germany’s KfW, have typically priced deals between two and five years in tenor. The UK is thought unlikely to deviate far from the standard. The proceeds will be used to finance the UK’s foreign exchange reserves.
“With this bond the Bank of England will be adding renminbi to its mix of reserve currencies — dollars, euros, yen and Canadian dollars” said Chris Jones, global head of local currency syndicate at HSBC in London. “That means it will be investing the proceeds in renminbi denominated assets which in itself will be a positive development for the renminbi capital markets.”
The Treasury is unlikely to face competition from Germany — a major trading partner with China — in its bid to become the first sovereign outside China to print an offshore renminbi bond. The Deutsche Finanzagentur is not planning any foreign currency bond issues because it sees no cost saving versus selling euro denominated Bunds, said a spokesperson for the institution.
Luxembourg, another centre for RMB business in Europe, declined to comment on whether it will look to sell a bond in the currency.
Investor base
The European Investment Bank’s head of capital markets, Eila Kreivi, told Emerging Markets that the EIB would consider a deal if the cost made sense. “We don’t have renminbi funding needs and would need to swap the proceeds,” she said.
“So far the levels we could achieve with a renminbi deal have not been as attractive as our dollar or euro curves. Renminbi is a currency that we are monitoring and if it makes sense we could do a deal.”
Demand for renminbi denominated deals is unlikely to be hit by concerns that slowing economic growth, and a host of other looming problems in the Chinese economy, will induce volatility in the currency, said HSBC’s Jones.
“The renminbi investor base has vastly improved in quality since this time last year,” he said. “Fast money has been less relevant than earlier this year when they realised that the renminbi was no longer a one way bet.
