Off­shore reach

Poland be­comes the first Euro­pean coun­try to is­sue RMB bond.

China Daily (USA) - - FRONT PAGE - By CECILY LIU in Lon­don cecily.liu@ mail.chi­nadai­lyuk.com

Poland has be­come the first Euro­pean coun­try to is­sue govern­ment debt in China’s bond mar­ket, with a bond of 3 bil­lion yuan ($452 mil­lion), a move which an­a­lysts said marks a sig­nif­i­cant mile­stone for the yuan’s grow­ing use in­ter­na­tion­ally.

The three-year bond has a yield of 3.4 per­cent. Bank of Chi­naCoLt­dandHSBCHold­ings Plc are joint bookrun­ners and joint lead un­der­writ­ers. The bond is­suance comes ahead of the yuan’s im­mi­nent in­clu­sion in the In­ter­na­tional Mon­e­tary Fund’s bas­ket of Spe­cial Draw­ing Rights cur­ren­cies in Oc­to­ber.

The IMF’s SDR is an in­ter­na­tional re­serve as­set, in the form of a cur­rency bas­ket that the yuan will join in Oc­to­ber to sit along­side the dol­lar, euro, ster­ling and yen. It is the ma­jor al­ter­na­tive cur­rency to the dol­lar, which dominates in­ter­na­tional for­eign ex­change trans­ac­tions.

Is­suance of the so-called panda bonds, which are yuan-de­nom­i­nated on­shore Chi­nese debt is­sued by for­eign en­ti­ties, was first per­mit­ted in 2005. As of March 2016, the out­stand­ing amount of panda bonds was only $2.57 bil­lion, ac­cord­ing to the rat­ings agency Fitch Rat­ings Inc. So far most is­suers have been in­ter­na­tional fi­nan­cial in­sti­tu­tions.

“This trans­ac­tion marks an­other mile­stone in the rapid in­te­gra­tion of the Chi­nese mar­ket into the global mar­ket­place. It forms part of the prepa­ra­tion for China’s ac­ces­sion to the global re­serve cur­rency sys­tem,” said Jan Dehn, head of re­search at Lon­don­based Ash­more In­vest­ment Man­age­ment Ltd.

Dehn said such sov­er­eign debt tended to be is­sued in or­der to meet a spe­cific mar­ket de­mand for the yuan, typ­i­cally com­ing from cor­po­ra­tions that needed yuan as­sets for hedg­ing pur­poses.

“China is now a hugely dom­i­nant trad­ing na­tion and, as the yuan has nat­u­rally be­come more flex­i­ble as part of the SDR in­clu­sion, both fi­nan­cial and non­fi­nan­cial cor­po­rates that trans­act with China will nat­u­rally have greater hedg­ing needs,” said Dehn.

This trans­ac­tion marks an­other mile­stone in the rapid in­te­gra­tion of the Chi­nese mar­ket into the global mar­ket­place.”

Jan Dehn, head of re­search at Lon­don-based Ash­more In­vest­ment Man­age­ment Ltd

At the same time, in­creas­ing is­suance of yuan-de­nom­i­nated bonds helps China to pop­u­late its yuan yield curve, “a de­sir­able piece of fi­nan­cial in­fra­struc­ture for any coun­try with the am­bi­tion of be­com­ing a global re­serve cur­rency”, Dehn said.

Mi­randa Carr, a senior an­a­lyst atHaitong Se­cu­ri­ties Co in Lon­don, said the bond is­suance fol­lowed in the foot­steps of a grow­ing amount of yuan bonds is­sued by for­eign en­ti­ties — and this trend is ex­pected to grow as more in­sti­tu­tional in­vestors di­ver­si­fied their for­eign ex­change hold­ings into the yuan af­ter the SDR in­clu­sion.

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