Singapore Hoists Dim Sum Challenge as HSBC Sells

Singapore kicked off its challenge to Hong Kong’s dominance of the $42 billion offshore yuan bond market yesterday, with HSBC Holdings Plc and Standard Chartered Plc offering the city-state’s first Dim Sum notes.

HSBC sold 500 million yuan ($82 million) of two-year debt at 2.25 percent, while Standard Chartered priced 1 billion yuan of three-year notes at 2.625 percent after the Industrial and Commercial Bank of China Ltd. started clearing services in the Chinese currency in Singapore. Average yields on Dim Sum bonds, first sold in Hong Kong in 2007, and Asian dollar corporate securities were 3.56 percent and 3.85 percent, respectively, according to Bank of America indexes.

Singapore has surpassed Hong Kong as a base for Asia’s rich. The city had 91,000 millionaires with a combined $439 billion of investable assets, compared to Hong Kong’s 84,000 with $408 billion, according to RBC Wealth Management and Capgemini SA. Hong Kong had the world’s largest offshore yuan savings pool at 668 billion yuan at the end of March and handles about 90 percent of China’s trade denominated in the currency, according to Hong Kong Monetary Authority data.

“We will see Singapore become very significant in terms of sharing the volume of yuan traded offshore,” Aaron Russell-Davison, Singapore-based global head of bond syndicate at Standard Chartered, said in a May 27 interview. “It is a trading city, historically mercantile by nature.”

Asean Edge

Singapore is the world’s fourth-largest currency trading center, while Hong Kong is sixth, according to a triennial survey by the Bank for International Settlements issued in September 2010. The city doubled a currency-swap agreement with China to 300 billion yuan in March.

Singapore is also part of the 10-member Association of Southeast Asian Nations, which took up 11.6 percent of China’s exports in April, from 9.8 percent in September, according to the Beijing-based Customs General Administration. That’s the fourth-largest after Hong Kong, the U.S. and the European Union.

“Singapore’s yuan clearing start is part of China’s grand plan of internationalizing the yuan,” said James Su, who oversees about $40 million as a fixed-income portfolio manager at Sinopac Asset Management in Hong Kong. “From China’s perspective, Singapore is likely to be the hub for Asean nations.”

He added that Hong Kong will remain the dominant center due to trade flows.

Private Bank Money

Singapore has a large pool of private bank money in U.S. dollars, which can buy into the yuan’s appreciation, Clifford Lee, Singapore-based head of fixed-income at DBS Group Holdings Ltd., said in a May 27 teleconference with media.

“What you see out of Singapore now, the renminbi here and in Hong Kong, they are all fungible so they are not two separate markets,” said Lee. “I don’t see this as a replacement or competition in any form in terms of what Hong Kong’s role is.”

Yuan deposits in Singapore were about 60 billion yuan, Ong Chong Tee, the Monetary Authority of Singapore’s deputy managing director, said in June 2012. At that time, Hong Kong’s savings stood at 558 billion yuan.

The yuan has performed the second-best among Asia’s 11 most-traded currencies this year with a 1.8 percent advance, while the Hong Kong dollar is pegged to the greenback and the Singapore dollar slumped 3.3 percent, according to data compiled by Bloomberg.

Yuan Rally

China’s currency climbed to a 19-year high of 6.1210 per dollar in Shanghai yesterday before slipping 0.02 percent today to 6.1225. The yuan’s gain has driven a 47 basis point decrease in the Dim Sum bond average yield this year to 3.56 percent. The yield on China’s benchmark 10-year government bond fell 14 basis points to 3.46 percent in the period, according to Chinabond data.

Premier Li Keqiang signaled on May 6 that China will unveil a plan on capital-account convertibility this year. The Chinese currency was the 13th most-used in global payments in April, according to the Society for Worldwide Interbank Financial Telecommunication. On March 27, it said that Taiwan was the world’s fourth-largest offshore yuan center excluding Hong Kong, behind the U.K., Singapore and France.

China Economy

The cost to insure sovereign notes in China against non-payment has risen 15 basis points this year. Five-year credit-default swaps were quoted at 81.5 basis points in New York yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Premier Li indicated on May 13 that policy makers are reluctant to use stimulus to counter a slowdown in the world’s second-largest economy. China’s economic growth has held below 8 percent for the last four quarters, the first time that has happened in at least 20 years.

Standard Chartered and HSBC expect the start of yuan clearing services in Singapore to lead to more Dim Sum bond sales as deposits rise in the city-state. Offshore yuan debt sales in Hong Kong doubled this year to 144 billion yuan and may reach 360 billion yuan this year, according to estimates from HSBC.

As the offshore yuan center in Singapore develops, it will be “more convenient for users of the currency, particularly for issuers and investors whose cash and regional operations are based in Singapore,” Matthew Cannon, head of global markets for Singapore at HSBC, said in a phone interview yesterday.

Direct Trading

New Zealand and China are in talks to make their currencies directly convertible, aiming to reduce costs as trade between the two countries is targeted to surge by 33 percent in the next two years. Direct trading between the yuan and the Australian dollar started last month, making the Aussie the third major currency to be directly convertible with China’s, following the dollar and the Japanese yen.

“As a well-established global debt trading hub, Singapore should be a natural center for the trading of offshore renminbi bonds,” Jake Gearhart, Deutsche Bank AG head of global risk syndicate for Asia in Singapore, said in an e-mail interview yesterday. “Now that renminbi clearing is live in the city, Singapore clearly has a unique role to play in shaping this development, as one of the region’s primary FX, commodities and rates trading hubs.”

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