China Pricing First Offshore Bond in London to Boost Hub Status

  • Investor meeting attended by Bank of England, U.K. Treasury
  • HSBC and Bank of China are global coordinators of the sale

China plans to sell 3 billion yuan ($458 million) of sovereign bonds in London on Thursday in the nation’s first offshore sale outside of Hong Kong as the biggest emerging-nation economy seeks to internationalize its currency.

The securities will mature June 2, 2019, global coordinators Bank of China Ltd. and HSBC Holdings Plc told an investor meeting also attended by representatives for the Bank of England and U.K. Treasury.

The offering may be hampered by recent trading weakness even as China seeks to broaden the range of assets in yuan overseas as the International Monetary Fund prepares to recognize the currency in its reserve basket. The yuan has slid 1.2 percent against the dollar this month on mounting expectations for an increase in the Federal Reserve interest rates this summer.

The sale should provide a benchmark and “inject energy” into London’s yuan market, said Xiaoxia Sun, director general of the finance department at China’s finance ministry, who spoke in Mandarin with an English translator. “The yield curve is taking shape.”

London Push

Chancellor of the Exchequer George Osborne has sought to position London as Europe’s dominant yuan hub. The U.K. capital was the first in the region to house a clearing bank for the Chinese currency. Britain also became the first foreign sovereign issuer of yuan bonds in 2014.

The yuan-denominated notes follow the issuance of one-year bills in London last year by the People’s Bank of China.

On Wednesday, China’s central bank weakened its currency fixing to the lowest since March 2011 as the dollar strengthened. The dollar’s strength is shaking up a strategy that the People’s Bank of China pursued over the past three months -- a steady rate against the dollar, combined with depreciation against other major currencies.

Yuan Depreciation

“In the current environment where most people expect the yuan to weaken, it will probably be a difficult sell,” said Kieran Curtis, investment director at Standard Life Investments Ltd. in London, which manages $10 billion in emerging-market assets. The bonds “could be priced cheap to encourage people to get involved in the deal,” he said, speaking before the meeting.

The yield on benchmark 10-year sovereign debt in China was little changed at 2.94 percent on Wednesday, according to Chinabond data. Offshore notes traded in Hong Kong yielded 3.69 percent on Tuesday.

The Finance Ministry will also continue to sell yuan bonds in Hong Kong this year, with more details to be announced next month, according to Sun.

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