Yuan bonds provide funding opportunity in Italy

MILAN -- RMB-denominated bonds can be a valuable investment opportunity for Italian companies struggling in recession, Italian analysts said Wednesday.

The dim sum bonds, denominated in Chinese renminbi (RMB) and issued by foreign companies, can be a concrete funding source for Italian listed companies, as well as private ones in the future, Filippo Emanuele, partner of the global law firm Clifford Chance, told a conference in Milan.

However, until now no company in Italy has taken advantage of this opportunity despite increasing difficulties in financing themselves amid recession, which is different from other European countries.

This April, the first RMB-denominated bond issued by HSBC outside China was listed on the London Stock Exchange for retail investors, showing the rising demand of the Chinese yuan in the business community.

The deal gave a glimpse of the huge potential for international RMB bond issues to be traded on European exchanges, Emanuele noted.

"In fact, various reasons make the financial instrument very useful for Italian issuers and investors that in the past years often sought funding in the increasingly limited American and Japanese markets," he said.

For example, Italian companies can expand their pools of investors by raising liquidity from all players operating in RMB across foreign markets, he said.

Moreover, the analyst added, Italian companies that have commercial activities in China can issue RMB-denominated bonds to help develop their businesses in China with lower currency risks.

It has been 10 years since China started to relax some of its capital controls. As the RMB is increasingly internationalized, its full convertibility has become an increasingly foreseeable event, said Thomas Rosenthal, head of the Strategy and External Relations of Italy-China Foundation.

Rosenthal highlighted that China's rise as a global economic power has made its currency more attractive, especially after the 2008 global financial crisis.

In 2009, China launched a pilot program to settle cross-border trade with the RMB. Recalling that, he said, "since then, a series of developments accelerating the RMB internationalization process have created valuable investment opportunities for market players worldwide."

"Considering that China is the second largest economy in the world, transnational financial and commercial transactions settled in RMB will grow increasingly," he continued.

Given this scenario, there is no doubt that the RMB can evolve into a major global trading, financing and investment currency, and eventually a global reserve currency, said Rosenthal.