Bank of China’s (BOC) Luxembourg-listed renminbi
bond – the first in the country by a Chinese issuer
– has further spurred competition to be the
currency’s European hub.
Its Luxembourg branch launched the deal on May 14, selling RMB
1.5 billion ($240.6 million) of three-year bonds at a coupon of
3.5% under its $10 billion medium-term note programme. The
first also introduced a new name for Luxembourg-listed renminbi
bonds by Chinese issuers – Schengen bonds.
Six European financial centres – London, Paris,
Frankfurt, Moscow, Zurich and
– are competing to become the continent’s
offshore renminbi hub. Only five Asian cities are competing for
the same role.
"BOC is issuing around the
world to make a point"
Chinese banks are encouraging the rivalry by selling bonds in
the competing markets; a development that also furthers the
internationalisation of the offshore renminbi.
"BOC is issuing around the world to make a point," said
Linklaters London partner Andrew Carmichael, noting that the
bank listed bonds from its
in January, its
in March and its Luxembourg branch in May.
BOC’s bonds will be settled through its Hong Kong
account although they were listed in Luxembourg and raise funds
through for BOC’s Luxembourg branch. Carmichael
said this illustrates that both London and Luxembourg have a
way to go before they match Hong Kong.
Completing payment in Hong Kong also bypasses
between offshore renminbi cleared in Hong Kong (CNH) and
Singapore (CNS). "At the moment there’s no easy
way to convert CNS to CNH, so BOC’s London and
Luxembourg bonds both kept payments in the Hong Kong renminbi
settlement system," he added.
Bank of China has issued the first bond from a Chinese issuer
to be listed in the eurozone;
Luxembourg hopes that the first Schengen bond will prompt
more bond listings from Chinese SOEs;
But the competition between European financial centres to
dominate renminbi trade within the
Luxembourg’s Schengen future
Linklaters’ Luxembourg-based partner Nicki Kayser
said that there are already approximately 50 renminbi bonds
listed in Luxembourg, one of the largest debt-listing venues in
the world. "It makes sense for more renminbi bonds to list here
to attract European issuers and investors," he
The non-Chinese issued dim sum bonds, such as those by
multinationals Caterpillar, Volkswagen and BP will list their
bonds in Hong Kong when advised by their lead manager, added
Carmichael. But when they’re doing a relatively
standard transaction off a medium term note (MTN) programme,
they’ll list bonds in their usual venues
– usually Luxembourg.
Attracting Chinese issuers to Luxembourg will be more
difficult. Many Chinese state-owned enterprises have equity
listed in Hong Kong and list their debt there as well;
it’s a natural home for these
"They need to know that there are commercial reasons for
listing elsewhere, but if their lead managers advise that it
will benefit the deal, they will do it," said
But there are options elsewhere. Agricultural Bank of
China’s Hong Kong branch
sold RMB 1.2 billion in Frankfurt-listed bonds on May
marking the first-ever CNH bonds from a Chinese borrower to
list in Frankfurt. China Construction
RMB 1.5 billion bond
, launched on May 19, was the first-ever non-German law bond to
be cleared in Frankfurt.
European RMB hubs
Alongside bond offerings from big four state-owned
banks’ bond issuances there has been a flurry of
activity in European renminbi hubs. Most notably
recently signed yuan-clearing agreements with the
People’s Bank of China (PBoC).
But it’s unclear how all of the European renminbi
hubs will work together. An
April survey of IFLR readers
revealed that 40% believed London has the greatest potential as
an offshore renminbi hub – before even Singapore.
Luxembourg only received 6.6% of reader votes.
A holistic European approach would be sensible because each
city has its own market function: Luxembourg is the
second-largest funds centre in the world, London is the global
centre for foreign exchange and Frankfurt is a hub for trade
"The different financial centres will play to their strengths
in the development of renminbi hubs," Carmichael
The competition may hamper cooperation though. A
report released yesterday
by Aite Group and Deutsche Börse’s
Clearstream included responses from 24 firms in the Chinese
market; more than half believed that Europe as a whole would be
a centre for offshore renminbi activity.
But, a respondent added, collaboration between the centres was
unlikely in the short term because they appear to be competing
in the race to act as a hub for clearing the
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