April 18, 2012 / 5:33 AM / in 6 years

HSBC launching London's first offshore yuan bond: IFR

HONG KONG/SHANGHAI (Reuters) - HSBC Holdings PLC plans to issue a yuan-denominated bond in London on Wednesday, the first such issue in the city, marking a milestone in London’s efforts to become a centre for offshore yuan trading alongside Hong Kong.

Women walk out of a branch of HSBC at Dubai Internet City in Dubai February 5, 2012. REUTERS/Nikhil Monteiro

HSBC (HSBA.L)(0005.HK) has released guidance for the three-year bond at 3.00-3.25 percent, IFR, a Thomson Reuters publication, reported on Wednesday, citing a term sheet.

The term sheet said the issue was a benchmark deal, implying it is worth at least 500 million yuan ($79.4 million). In the offshore yuan market, a 200 million yuan issuance is considered a good-sized deal.

HSBC, which IFR said was also the sole lead on the deal, was not immediately available for comment.

The planned issue comes amid significant reforms by Beijing to push ahead with internationalization of the yuan, including a widening of the yuan’s trading band to 1 percent from 0.5 percent that went into effect on Monday.

Chinese regulators this month also increased the quota for the Renminbi Foreign Qualified Institutional Investor (RQFII) program, which allows Hong Kong investors to purchase yuan-denominated funds using yuan accumulated offshore, to 70 billion yuan from 20 billion yuan.

London is just starting to build itself up as a centre for trading in offshore yuan after an agreement between the British and Chinese governments last year, but deposits there are starting to reach a critical mass necessary for the development of a yuan bond market.

Customer and interbank yuan deposits in London totaled 109 billion yuan at the end of 2011, according to a report published by the City of London Corporation on Wednesday.

However, that is far less than the 566 billion yuan in renminbi deposits in Hong Kong as of February, suggesting Hong Kong will remain the most important offshore yuan centre for some time to come.

London and other financial centers like Singapore are seeking to capitalize on the rapid growth of the offshore yuan bond market in Hong Kong since its launch less than two years ago, as investors aim to put their yuan deposits to work by buying high-yielding yuan bonds.

Other banks are also said to be planning to tap the London market to issue yuan-denominated debt, including Agricultural Development Bank of China, China Development Bank and the Export-Import Bank of China.

The groundbreaking deal is expected to be rated Aa2/AA- (Moody‘s/S&P), the same as HSBC Bank’s Aa2/AA-/AA (Moody‘s/S&P/Fitch). ($1 = 6.3015 Chinese yuan)

Reporting by Nethelie Wong of IFR in HONG KONG and Pete Sweeney in SHANGHAI; Editing by Daniel Magnowski

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