Taiwan is poised to sell its first Chinese yuan-denominated bonds, following Hong Kong and London, as the cities compete for business in a currency that is moving toward becoming convertible.
Chinatrust Commercial Bank, a unit of Taipei-based Chinatrust Financial Holding Co., plans to raise about $169 million from two- to five-year notes that will be traded locally, the island’s Financial Supervisory Commission said yesterday. Offshore interbank trading of yuan starts today in Taiwan, with the currency moving in line with the exchange rate in Hong Kong.
An August pact on cross-strait currency clearing paved the way for Taiwan to host the world’s second offshore yuan exchange rate after Hong Kong. China, Asia’s biggest economy, has pledged to support offshore yuan hubs as it encourages greater use of the currency in global trade and finance. Outside of Asia, companies including China Construction Bank Corp. and HSBC Holdings Plc have listed yuan-denominated debt in London.
“This new development will help the internationalization of the yuan,” said Steve Wang, the Hong Kong-based head of fixed-income research at BOCI Securities Ltd., a unit of China’s fourth-largest bank. “A lot of Taiwanese companies will want to sell yuan bonds. Overseas corporations who do business with Taiwan, such as technology companies, will want to sell bonds in Taiwan too.”
Mega International Commercial Bank Co., a Taipei-based lender, will also apply to issue yuan debt, according to Jean Chiu, deputy director general of the FSC’s banking bureau.
On the first day of trading, the yuan was at 6.2145 per dollar as of 12:21 p.m. in Taipei, with 42 transactions recorded, according to Taipei Forex Inc. In Hong Kong’s offshore market, the currency was little changed at 6.2150, while it weakened 0.04 percent to 6.2320 in the onshore Shanghai market.
Taiwan’s monetary authority said 46 lenders have opened accounts with the island’s yuan-clearing bank and that yuan deposits will be accepted starting today. Chinese currency deposits held by Taiwanese lenders’ offshore units totaled 21.5 billion yuan ($3.5 billion) at the end of November. That compares with the 603 billion yuan of deposits held in Hong Kong as of December, official data shows.
The U.K. is also seeking to move into the yuan trade, with the Bank of England saying last month that it is ready “in principle” for a currency-swap agreement with the People’s Bank of China. Chancellor of the Exchequer George Osborne is pushing for London to become an offshore center for yuan trading to deepen links with China.
Taiwanese businesses have invested an estimated $200 billion in mainland China, even as the political impasse that dates back to the mid-20th century remains unresolved. Ruled separately since 1949, when the Nationalists fled to the island after losing a civil war with Communist forces, Taiwan’s government restricts mainland Chinese investment in its industries and limits the number of tourists visiting from China.
Taiwanese companies including Uni-President Enterprises Corp. have been raising funds in Hong Kong to meet trade-related payments, build factories and tap surging consumer spending powered by a 90-fold increase in China’s economy over the past three decades.
A unit of Uni-President, a Tainan-based instant-noodle maker, borrowed 1 billion yuan for three years in July. Chailease Finance BVI Co., a subsidiary of the island’s biggest commercial finance company, raised 750 million yuan through a sale of three-year bonds in Hong Kong in March.
It is yet to be decided whether so-called “Formosa Bonds” by the FSC, will be cleared on the island, Yang Chin-Lung, deputy governor at Taiwan’s central bank, said at yesterday’s briefing. The Taipei branch of Bank of China Ltd., the second yuan clearing bank appointed outside of China, will provide trading quotes for the yuan from today, said General Manager Cai Rongjun. So far, BOC Hong Kong is the only bond clearer for yuan debt in the world.
Clearing yuan-denominated debt on the island will make trading of Formosa bonds more cost-efficient and less risky, FSC’s Chiu said. Taiwan should be able to take up the job locally, she said.
Bank of China said in December that it processed 1.72 trillion yuan of cross-border transactions in the currency during the first nine months of 2012, up 31 percent from the same period of 2011.
“The next step will be for Taiwan and China to figure out how the bond-clearing system should be set up to draw more Taiwanese issuers,” said Crystal Zhao, a fixed-income analyst at HSBC Holdings in Hong Kong. “The regulator may need time to see the need for bond clearing to be done in Taiwan.”