HSBC hopes to leapfrog rivals with new China partnership

Mon Nov 9, 2015 4:42am EST
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By Lawrence White and Umesh Desai

HONG KONG (Reuters) - HSBC (HSBA.L: Quote) is seeking to overtake Western rivals in the race for a slice of China's $4 trillion onshore bond market thanks to an investment banking partnership with a state-owned investor it announced last week.

Europe's biggest bank is late among foreign banks to the party in China's onshore investment banking market, where rivals like Credit Suisse CSGN.VX, Deutsche Bank (DBKGn.DE: Quote) and Goldman Sachs (GS.N: Quote) established joint ventures with local players years ago.

But foreign banks have made limited inroads in China because of the restrictive licenses handed out to the early entrants. Morgan Stanley Huaxin Securities, the top foreign player in China's onshore bond market this year, ranked 29th by proceeds raised, just ahead of UBS UBSG.VX, according to Thomson Reuters data.

The move is not without risk in a slowing economy with a heavily indebted corporate sector, but HSBC, which is exploiting new rules that favor Hong Kong-funded lenders, will have an extensive license and will not be bound by the 49-percent ownership cap normally imposed on foreigners.

And while rivals partnered with smaller local brokerages, HSBC's partner is the Chinese government itself.

"The other banks have had a 10-year headstart and not gotten very far, and I think HSBC could be the tortoise to their hares and get ahead despite a slower start," said Keith Pogson, Asia head of financial services at EY.

CEO Stuart Gulliver said last week HSBC aims to establish a foothold in issuing bonds in China, part of a potentially risky strategy to expand in the country's export-oriented Pearl River Delta industrial zone, despite China's slowing economic growth.

HSBC will work with Shenzhen Qianhai Financial Holdings, the state investment fund arm of a development zone bordering Hong Kong that has been earmarked by the government for investment.   Continued...

A man walks past a logo of HSBC outside a branch at the financial Central district in Hong Kong, China June 2, 2015.  REUTERS/Bobby Yip