China's Finance Ministry Plan Yuan Bond Sales in London

Updated on
  • All previous offshore issuance of the notes was in Hong Kong
  • Offering to proceed after PBOC sells yuan debt in London

China plans to issue yuan-denominated sovereign bonds in London for the first time as it seeks a greater role for its currency in global trade and finance, according to people familiar with the matter.

The sale would be the first offshore issuance of the notes outside of Hong Kong and is expected to take place after the People’s Bank of China sells one-year bills in the U.K. capital, said the people, who asked not to be named as the proposal has yet to be announced. The central bank’s offering, which is being arranged by Industrial & Commercial Bank of China Ltd. and HSBC Holdings Plc, is due to take place by early November.

"It’s time for China to broaden the sovereign bond market beyond Hong Kong," said Ngan Kim Man, deputy head of treasury at China Everbright Bank Co.’s Hong Kong branch. "It’s quite a natural move and can bolster yuan usage in Europe. It’s part of the yuan internationalization strategy."

Asia’s biggest economy is allowing global funds increased access to its domestic capital markets and broadening the range of yuan-denominated investments available offshore as it pushes for the currency to win reserve status at the International Monetary Fund in a November review. The proposed debt sales in London come at a time when yields in the onshore market are declining, with the coupon on 10-year bonds having fallen below 3 percent at an auction for the first time since 2008.

Yuan Hub

Issuing notes in London will help cement the city’s place as the dominant yuan trading hub for Europe as Paris and Frankfurt compete for a share of the market. Outside of China, only Hong Kong and Singapore are bigger clearing centers than the U.K. for yuan transactions, according to the Society for Worldwide Interbank Financial Telecommunications.

The PBOC will sell as much as 5 billion yuan ($788 million) of one-year bills in London within a month, which would be the central bank’s first issuance outside of the domestic market, people familiar with the matter said last week. China Development Bank and China Construction Bank Corp. are among issuers that have already sold yuan-denominated debt in the city.

China Construction Bank, the nation’s second-largest lender, issued 1 billion yuan of two-year bonds in London this week at 4.3 percent, according to data compiled by Bloomberg. Only 1 percent of the debt was sold to investors in Europe, with Asia-based buyers accounting for the other 99 percent. Similar-maturity notes from top-rated Chinese commercial banks yield 3.55 percent in Shanghai, ChinaBond data show.

"It does take time to cultivate a new investor base," said Ngan of China Everbright. "We should see more high-grade issuers tap the London yuan market so investors in Europe will become more familiar with Chinese names."

Xi Visit

China’s planned sale of sovereign bonds was earlier reported by the Financial Times and comes before President Xi Jinping pays his first state visit to the U.K. during the Oct. 19-23 period. The Ministry of Finance, which auctioned 10-year bonds with a 2.99 percent coupon in Shanghai on Wednesday, didn’t respond to a faxed request seeking comment on the proposed London sale.

In August, the yuan became the fourth most-used currency for global payments with a 2.79 percent share, surpassing the Japanese yen. The U.K. became the first foreign sovereign issuer of yuan bonds last year and in September said it supported China’s bid to have the currency included in the IMF’s Special Drawing Rights, which currently comprise dollars, euros, yen and British pounds.

— With assistance by Helen Sun, Fion Li, and Steven Yang

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