Yuan issuance set to top 2010 levels
Updated: 2011-06-14 07:02
By Oswald Chen(HK Edition)
HKMA says Jan-May figures reach 28b yuan, 76% of last year's total
The Hong Kong Monetary Authority (HKMA) said on Monday that yuan bond issuance through the first five months of 2011 has already reached 76 percent of last year's total.
"From January to May 2011, 28 yuan debt issuers have conducted their yuan-denominated bond issuance programs and have raised 28 billion yuan in Hong Kong," said HKMA Chief Executive Norman Chan at a financial forum organized by the Bauhinia Foundation Research Centre. "This compares with full-year 2010, where 16 yuan bond issuers raised 36 billion yuan. The figures from the first five months suggest that there is still tremendous business potential for the yuan bond issuance business in Hong Kong."
The number of yuan debt issuers from January to May in 2011 has already exceeded the total number in 2010 by 1.75 times.
The Ministry of Finance said earlier in May that it may issue not less than 10 billion worth of yuan-denominated bonds in Hong Kong. This was the third time the Ministry of Finance has issued yuan-denominated bonds in the city.
Meanwhile, so-called "dim sum" note sales may increase to 200 billion yuan ($31 billion) in 2011, up substantially from 37.5 billion yuan last year, as global investors bet on the yuan appreciating more than the currencies of Brazil, India and Russia, according to an estimate from Mizuho Securities Asia Ltd. Dim sum bond issuance has reached 68 billion yuan so far this year.
The ballooning growth of local yuan deposits in Hong Kong will be the future engine to propel the yuan-denominated bond issuance business, as more yuan capital is seeking more investment outlets. As of the end of April 2011, total yuan deposits in Hong Kong surged to 510 billion yuan, representing around 8 percent of total deposits in the city, compared with 310 billion yuan worth of deposits at the end of 2010.
Separately, HKMA's Chan said that mainland authorities will issue rules on yuan-denominated foreign direct investment (FDI) into the country before the end of the year, allowing easier yuan repatriation.
"Once the new rules come out, it will provide a greater degree of certainty and easier access by investors when they have yuan funding in Hong Kong and elsewhere," Chan said at Monday's forum.
The mainland will grow 9.5 percent this year, according to economists surveyed by Bloomberg. This is luring investment and boosting capital inflows that add to the record $3 trillion of foreign-exchange reserves on the mainland, and hampering central bank efforts to limit gains in real estate and consumer-goods prices.
"The mainland may not want the offshore pool of yuan to return in the form of portfolio investments into equities or real estate as these markets do not need much fresh capital, but they would welcome more foreign direct investment," said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong.
Overseas investment on the mainland rose 26 percent in the first four months of the year to $38.8 billion, the data of Ministry of Commerce said last month. Currently, FDI in yuan needs case-by-case approval from the authorities, Chan said.
The new rules may lead to large-scale yuan-denominated investment into the mainland and "may slow growth of the offshore pool of yuan", Kowalczyk said. "Plans for simplified new regulations governing yuan-denominated FDI are not a surprise given that it's a logical next step to internationalize the yuan currency."
Bloomberg contributed to this story.
(HK Edition 06/14/2011 page2)