A leading securities group has called for Chinas
central government to develop a more streamlined repatriation
approval process in the offshore renminbi market.
Asia Securities Industry & Financial Markets Association
(Asifma) chief executive and managing director, Nicholas de
Boursac, told IFLR that bringing offshore renminbi back onshore
was still complex.
With many provinces and municipalities involved in the
approval process, a standard application form would be helpful,
At the moment each province has to be approached
separately, so establishing a relatively standardised
application process would be more efficient, he
Ideally, our members would like a central process in
which things are approved in one place, but this is unlikely in
the short term, he said. Provincial parties will want to
have a say on what is going on in their region.
Offshore renminbi fixings would also help the market, he
said, although it may take time to develop the required market
depth for these.
You really need to have volume to be able to have
dependable fixing; so I think we can put the pieces in place,
but the question remains as to when the Hong Kong renminbi
markets will be liquid enough to be comfortable with that
fixing, he explained.
A Hong Kong-specific interbank lending rate similar to the
LIBOR will need more interbank deposits from market
participants in order to become a reliable fixing, he said. But
the market may also consider a fixing alternative based on swap
In the meantime, the lack of an renminbi Hong Kong interbank
offered rate (HIBOR) rate is holding back the development of an
offshore renminbi syndicated loan market, Linklaters Hong
Kong-based co-head of banking and projects, Trevor Clark
Linklaters Asia head of capital markets, Andrew
Malcolm said offshore renminbi floating rate notes would only
become available when such a rate develops. He added that it
did not make sense to use an onshore rate such as the Shanghai
interbank offered rate (SHIBOR) because that was not accessible
by offshore banks or borrowers and could only serve as a very
There are also new documentation issues related to market
disruptions that could prevent delivery in renminbi, explained
Such issues could be addressed through specific triggers
that would allow settlement in an alternative currency;
however, there is a question now with respect to when and under
what circumstances such alternative settlements should be
Its possible that market illiquidity could
prevent a party from delivering renminbi, but the issue still
to be resolved is at what point would such illiquidity be
deemed to trigger this alternative settlement, he
According to Malcolm, the question of appropriate currency
fallback clauses for bonds and derivatives documentation was
becoming important as more sophisticated, international
borrowers access the offshore market, said Malcolm.
There has been a perception that currency risk is an
issuer risk, because it could result in an event of default,
but investors are now also looking for protection in the sense
of a fallback to payment in a freely convertible currency like
US dollars, he said.
China seems to be more open to utilising Hong Kong as the
testing ground for these and other issues that may arise as the
market develops, said de Boursac. It is easier for
Chinese authorities to try something new in Hong Kong as
opposed to somewhere outside of China.