RMB bond ready for European private investors

Private investors can now trade renminbi bonds in London as the first yuan-denominated bond to be released outside of Chinese territory was listed on the London Stock Exchange this week.

The bond, issued by the banking company HSBC Holdings PLC, was listed on the exchange's electronic order book for retail bonds. It is the first bond denominated in something other than sterling to be offered to retail investors since the bond-trading system was introduced in February 2010.

"This is a first for private investors accessing our markets," said Doug Webb, chief financial officer of LSE Group.

"HSBC's RMB-denominated bond offers investors simple and transparent access to a new non-sterling debt product."

The listing comes as the British government aims to make London into an offshore center for yuan trading. That ambition was announced by George Osborne, British chancellor of the exchequer, in January.

"The HSBC bond has received a good response," said Mark Boleat, policy chairman of the City of London Corporation, the governing body of the City of London.

"It shows that there really is demand here in London for (renminbi) investment products. Sixty percent of the investors were European, which is a clear sign. It was a relatively small issuance, but it has started a process, which I expect to grow and expand. London is historically a center for Eurobonds and for corporate financing, and so it is likely that London's share of the issuance will increase."

The bond on the London Stock Exchange is available to private investors in denominations of 10,000 yuan ($1,600), according to an exchange statement.

It pays an annual coupon of 2.875 percent, the statement said. "We hope this will be the first of many international issues," Webb said.

"We are delighted to bring this issue to the secondary market, giving investors the opportunity to trade a RMB-denominated security as the currency continues to internationalize," said Samir Assaf, CEO of HSBC's Global Banking and Markets business.

The HSBC bond raised 2 billion yuan when it was introduced in mid-April.

"This deal gives a glimpse of the strong potential for international RMB bond issues to be traded on European exchanges," he said.

Other financial institutions — both local banks such as Standard Chartered PLC and Chinese banks operating in London — may follow suit as they foresee opportunities that might be generated from doing business in renminbi.

Industrial and Commercial Bank of China Ltd, China's largest bank measured by market capital, and Bank of China Ltd, the country's third largest lender, have already taken part in the yuan business in London. They both are offering to open yuan accounts for individuals and businesses, settle cross-border trade in the Chinese currency and provide similar services.

The demand for the yuan is increasing in the business community.

Multinational companies that conduct large amounts of trade with China will consider using renminbi in some parts of their businesses as the yuan becomes more international, according to Xu Jinlei, director of ICBC Plc London.

"The next year will see a lot of momentum," said Xu.

Some say, though, that the desired outcome may not arise as quickly as banks expect.

Beijing still needs a lot of time to make the renminbi fully convertible, and people in the West need to be persuaded of the benefits of holding the Chinese currency, according to Paola Sabucchi, research director of International Economics at Chatham House, a leading think tank on international affairs.

"It is a going to be a long-term process," Sabucchi said. "It is probably going to happen in the next decade."

Many in London harbor skepticism toward the renminbi.

"It is not fully convertible, and it is not liquid here," Sabucchi said. "So the RMB will remain a niche for private investors."