The Ministry of Finance plans to start selling 20 billion yuan ($3.1 billion) of bonds in Hong Kong today, according to a person familiar with the matter on Tuesday.

The two-part issue will consist of 15 billion yuan of notes for institutional investors and 5 billion yuan of notes which have been earmarked for individual investors, the person said, asking not to be identified as details are private.

The sale will be the ministry's third and largest issue of yuan-denominated bonds in Hong Kong, as appreciation prospects spur demand for the mainland's currency and policy makers seek to promote its use in global trade and investment.

The Ministry of Finance last sold so-called dim sum bonds in November 2010, when it raised 8 billion yuan by issuing 5 billion yuan of notes to institutional investors and 3 billion yuan of debt to individuals, according to Bloomberg data. Its first such sale was in September 2009 when 6 billion yuan was raised, the data show.

This year's institutional sale will be conducted via a Dutch auction starting at 9:00 am local time today, the person said. The sale to individual investors will begin on Thursday via participating banks in the city and should be complete by the end of the month, the person said. A Dutch auction is an offer in which investors can specify the price, within a set range, at which they are willing to buy or sell.

The 15 billion yuan sale will consist of 6 billion yuan of three-year bonds, 5 billion yuan of five-year bonds, 3 billion yuan of seven-year bonds and 1 billion yuan of 10-year bonds, the person said.

The three-year bonds are being offered to investors to yield about 0.7 percent to 0.9 percent while the five-year notes are being marketed in the area of 1.2 percent to 1.5 percent, according to three people familiar with the matter.

The seven-year bonds may yield 1.7 percent to 2.2 percent while the 10-year notes may yield 2.2 percent to 2.5 percent, the three people said. The notes' final price will be determined via today's auction.

Bank of Communications is helping to organize the sale to institutional investors, while HSBC and Bank of China are helping to organize the sale to individual investors, according to the first person. Those 5 billion yuan of notes will mature in two years.

Today's auction ceremony will be attended by Vice Premier Li Keqiang. During his visit he will discuss closer cooperation with Hong Kong, he said, speaking after he arrived at the city's airport on Tuesday.

Bloomberg

(HK Edition 08/17/2011 page1)