First offshore renminbi issue delivered in London

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First offshore renminbi issue delivered in London

Last Tuesday, China’s biggest bank issued its first offshore bond in London, cementing the UK’s ambition to be Europe’s dominant trading hub for the renminbi.

Totaling Rmb 2 billion (USD 328m), the bond was issued by the world’s largest bank in terms of market capitalisation – the Industrial and Commercial Bank of China (ICBC).

The bond was formed of two tranches, a three-year portion paying interest of 3.3% and a second, five-year portion paying 3.7%.

It was led by the ICBC, JPMorgan, Royal Bank of Scotland (RBS) and Standard Chartered.

Richard Tynan, currently RBS’ Head of European Debt Syndicate, said the issue was massively oversubscribed – with orders for the Rmb 2 billion deal reaching over Rmb 8.5 billion – pointing to a keen investor appetite for renminbi deals.

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“This is extremely significant – it’s a great boost for London’s ambitions to become an offshore renminbi centre,” he noted.

The ICBC deal marks the high point of a commercial rapprochement between the UK and the world’s second-largest economy, and follows a recent deal allowing Chinese parties to invest in the UK’s nuclear power sector.

Official comments

Whilst George Osborne, the UK Chancellor, has not issued an official comment, he is likely to embrace the news in light of his intentions to strengthen the financial ties between the UK and China.

Treasury Minister Sajid Javid suggested that a clearing bank based on the renminbi could now be launched in London to enhance the currency’s liquidity.

He furthered: “should London decide to pursue a local infrastructure arrangement, Chinese banks have a great advantage in providing clearing services.”

The historic relationship

Earlier this year, the Bank of England and the People’s Bank of China settled arrangements for a sterling-renminbi swap line, to encourage trade between the two world powers.

A currency swap line allows central banks of two different countries to purchase and repurchase currencies from each other; thus strengthening the availability of each country to obtain the other’s hard currency.

Prior to these developments, China’s biggest banks had avoided London; off-put by the UK’s regulatory drive towards subsidiary structures which feature many capital and funding requirements.

Instead, they preferred to base their European subsidiaries in Luxembourg.

Last year HSBC, the international bank, raised Rmb 2 billion (USD 300 million) in London in the first renminbi bond issue outside of China and Hong Kong.

“There’s a proven interest in the renminbi in London and it’s growing fast,” noted Jean-Marc Mercier, HSBC’s Global Head of Debt Syndicate.

This makes the pound the fourth currency to trade directly against the renminbi, meaning London is now competing with Singapore and other international financial hubs to establish itself as an offshore trading centre for China’s currency.

Ultimately, the City hopes to profit from China’s increasing integration and power within the global economy, whilst Beijing continues to make marked efforts to open its currency to the greater international market.

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