China lists first sovereign offshore RMB bond on LSE

British and Chinese officials greet the launch of China's sovereign offshore RMB bond in London. [Photo by Cecily Liu/chinadaily.com.cn]

China's Ministry of Finance listed its first sovereign offshore renminbi bond on the London Stock Exchange on Wednesday, marking a significant milestone in increasing London's offshore renminbi liquidity as the renminbi embraces its new status as a global reserve currency.

The 3 billion yuan ($458 million) three year renminbi bond issued in London is the first sovereign bond Ministry of Finance issued outside China. It is expected to act as a benchmark to aid future renminbi assets' pricing, hence encourage more issuance of renminbi investment products offshore. Bank of China and HSBC are joint global coordinators of the bond.

Shi Yaobin, Vice Minister of China's Ministry of Finance, said China and the UK's governments have made joint effort during the process of the issuance.

Speaking at the LSE today, he said: “The Chinese side has issued and listed bonds on the London Stock Exchange. The UK side has accepted sovereign renminbi bonds as Bank of England's eligible collaterals. The issuance has reflected the principle of reciprocal cooperation and mutual benefit.”

Bank of England's acceptance of the bond as an eligible collateral instrument increases its attractiveness to investors, as holders of this bond can swap it with the BoE for sterling for short term liquidity purposes.

Harriett Baldwin, the UK's Economic Secretary to the Treasury, said the bond's issuance is a golden moment in the UK and China's relationship, and that the UK government is committed to further help improve renminbi's internationalization.

Gao Yingxin, executive vice president of Bank of China, said the bond had been ordered by a wide range of investors. The deal was almost 3 times over-subscribed, with final allocation of 58 percent to investors in EMEA (Europe, the Middle East and Africa) and 42 percent to Asia. It is the first offshore benchmark renminbi bond that has greater allocation to EMEA than to Asia.

Andrew Carmichael, Capital Markets partner at the London based law firm, said the fact Ministry of Finance decided to list the bond on the LSE shows full commitment by China to participate in the international financial system.

Carmichael added this deal will also help to confirm London's place as the global centre of yuan trading outside of Asia. In April, London overtook Singapore to become the second largest offshore renminbi clearing center, just after Hong Kong. It now accounts for 6.3 percent of all offshore transactions using the renminbi.

Renminbi's internationalization process rides on the back of the Chinese economy's increasing integration into the global financial market. The renminbi is already the world's second-largest trading currency.

Increasing internationalization of the renminbi received further recognition with the International Monetary Fund's decision to include it in its basket of special drawing rights currencies in October.

To contact the reporter: cecily.liu@mail.chinadailyuk.com