China to Sell $458 Million of Sovereign Yuan Bonds in London

  • Bank of China, HSBC are global coordinators of the offering
  • Issue will be China’s first offshore sale outside Hong Kong

China plans to issue 3 billion yuan ($458 million) of sovereign bonds in London, the nation’s first offshore issuance of such securities outside of Hong Kong, as it tries to increase the currency’s global usage.

The sale will take place soon and the yuan-denominated notes will be listed on the London Stock Exchange, according to a statement posted on the Ministry of Finance’s website. It follows the issuance of one-year bills in the city last year by the People’s Bank of China.

Regulators in China have been trying to broaden the range of yuan assets available overseas, with the International Monetary Fund poised to add the yuan to its basket of reserve currencies with effect from Oct. 1. Policy makers are also considering allowing global investors freer access to its capital markets.

“The offering has nothing to do with financing needs,” said Jan Dehn, London-based head of research at Ashmore Group Plc, which manages about $51 billion in emerging-market assets including securities denominated in yuan, also known as renminbi. “They’re filling out gaps in the offshore market for renminbi to ensure that they meet the requirements that the IMF has for liquidity for global reserve currencies.”

The yield on benchmark 10-year sovereign debt in China was little changed at 2.95 percent on Monday, according to Chinabond data. Offshore notes traded in Hong Kong yielded 3.69 percent on Friday.

Offshore bonds are “not the stuff we would typically buy,” Dehn said. “We would want to have renminbi exposure in China. There is much more liquidity in the domestic markets.”

Appetite for offshore yuan securities has waned since the Chinese currency “stopped being a one-way appreciation bet,” according to London-based Paul McNamara at GAM UK Ltd., which oversees about $4.5 billion and doesn’t hold yuan debt.

Still, the relatively modest size of the offering will help ensure adequate appetite for the bonds, according to Commerzbank AG.

“Given the novelty of the bonds and the relatively small amount being sold, there should be solid demand for the bonds,” said Simon Quijano-Evans, chief emerging-market strategist at Commerzbank in London.

Bank of China Ltd. and HSBC Holdings Plc are global coordinators of the bond sale, according to the statement by China’s Finance Ministry. Investor meetings are scheduled for Wednesday in London, according to HSBC.

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