`Dim-Sum' Debt Shows Yuan Opening Amid Hot Money Crackdown: China Credit

HSBC Holdings Plc and Standard Chartered Plc, the largest foreign insurers yuan of bonds sold in Hong Kong, say they have never been busier, even as China seeks to curb capital inflows to limit the appreciation.

Justin Chan, deputy head of global markets HSBC Asia Pacific, said the bank has organized 10 conferences outside China to promote the use of currency in world trade and has "a very strong pipeline" of companies seeking sell bonds dim sum called the yuan-denominated debt issued in the city. Sundeep Bhandari, head of Standard Chartered's global markets in Northeast Asia, said the bank has made 25 similar events in 2010 and is advising a fund that plans to focus exclusively on debt.

While Chinese regulators have joined their counterparts from Brazil to Thailand last week in the setting of limits on cash flows, central bank governor Zhou Xiaochuan said yesterday that China will press ahead with reforms of the exchange rate of the yuan. Issuers are paying 40 percent fewer loans in the currency of Hong Kong than they pay in Shanghai because of demand from foreign investors betting on the exchange rate appreciation.

"China still wants to develop the land market by opening a controlled manner," said Chan at HSBC, Europe's biggest lender, in an interview Nov. 12 in Hong Kong. Last week's measures, including stricter rules on the repatriation of capital and foreign loans were the precautions "to prevent new flows of hot money in China," he said.

Elevation demand

The yuan may rise 6.2 percent to 6.26 per dollar by the end of next year, mostly among the BRIC countries, which also include Brazil, Russia and India The average estimate is an increase of 1.3 percent in the Brazilian real, an increase of 4.2 percent in the Indian rupee and an increase of 5 percent in the Russian ruble.

Chan, HSBC, said he expects the currency to appreciate by 3 percent to 5 percent annually for the next one to two years. He said the yuan may become one of the three major world currencies, the dollar and euro, in 20 to 30 years.

The yuan fell 0.16 percent to 6.6488 per dollar at 1:25 pm in Shanghai. The rate at sea in Hong Kong of 6.6075 was 0.6 percent stronger than the earth. yuan non-deliverable reflect currency bets will advance 2.4 percent in the next 12 months.

China is allowing greater use of its currency in trade and global investment to reduce dependence on the U.S. dollar after Prime Minister Wen Jiabao said in March that he is "concerned" about the holdings of assets denominated in the U.S. currency. The U.S. currency purchases to contain the appreciation of the yuan increased the reserves of the nation's exchange rate to 2.65 trillion U.S. dollars in September.

Trade Settlement

The value of international trade transactions settled in the Chinese currency rose by 160 percent in the three months to June to 126.5 billion yuan ($ 19 billion) in the third quarter, the People's Bank of China reported November 2. Yuan deposits in banks in Hong Kong more than doubled to a record 149 billion yuan in the six months ended 30 September, Hong Kong Monetary Authority data show.

"Our customers want to know about the yuan," said Bhandari of Standard Chartered in an interview Nov. 12 in Hong Kong. "I'm flying back from London at 5 pm on Wednesday and get a morning flight to Tokyo."

Bhandari refused to give details about the fund provided debt focused on the yuan or the name of its director. The very weak bond market has grown by 42 percent to 50 billion yuan from July 19, Royal Bank of Scotland Group Plc. said in a report on 15 November.

HSBC said it signed 11 issues of debt instruments denominated in yuan this year in Hong Kong, including dim sum bonds and certificates of deposit. Standard Chartered said it has been an insurer in a total sales of 8400 billion yuan in 2010.

Sales Planning

Export-Import Bank of China plans to sell up to 5 billion yuan of bonds in Hong Kong next month. International Finance Corporation, private investment arm of the World Bank aims to sell about 100 billion yuan of five-year bonds in Hong Kong, according to the Treasurer Nina Shapiro.

''We like to buy renminbi bonds on the high seas because of the regulations are not so boring,''said Tse Chern Chia, director at UOB Asset Management, which oversees the equivalent of $ 10.6 billion and is a unit of second largest bank Singapore's largest. ''They want to develop the renminbi bond market and, possibly, do not want more capital flows into the continent. So they are allowing the market grew out of Hong Kong. "

Attractive Returns

The appreciation of yuan in interest payments can result in annual yields of up to 7 percent, he said.

The average yield of yuan bonds in the city, including those sold by the state-controlled lenders, including China Development Bank and Bank of China Ltd., is 1.77 percent, according to Market Association Treasury, which is still 23 outstanding issues with maturities of not more than four years. The average rate in China for one to three years in bonds issued by government-linked companies is 2.99 percent, according to Bank of America Merrill Lynch China quasi-government index.

The yield on the government of China 3.28 percent in August 2020 was little changed at 3.74 percent, according to the National Interbank Funding. The extra yield investors demand to hold bonds to 10 years in China instead of similar maturity of U.S. government has increased 63 basis points from June 30 to 101.

Bond Risk

The perceived risk of investing in China's debt has fallen this year. credit-default contracts to five years in exchange for government debt rose two basis points to 63 basis points yesterday, CMA prices show in New York. They have fallen 11 basis points this year. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to debt agreements.

Chan, HSBC said that China will not reduce the openness of its financial market as it wants to make the yuan an international currency. The central bank allowed financial institutions abroad August 17 yuan to invest funds in the bond market in the nation. Hong Kong units of HSBC and Standard Chartered won approval last month.

China had approved qualified foreign institutional investors to buy 18.97 billion U.S. dollars of assets in China on 30 September, compared to 16.67 billion U.S. dollars of shares at the end of last year, according to a statement on the SAFE website on 10 November. Authorities to grant Hong Kong Monetary Authority QFII license in October.

Charles Li, executive director of Hong Kong Exchanges and Clearing Ltd., has suggested that Chinese companies to sell shares at prices of yuan in Hong Kong, where investors are exempt from the fees imposed by Beijing on foreign ownership of income Continental variable.

"If you want high demand for yuan on the high seas, it is necessary to create channels for yuan funds to be invested offshore," said Chan. "This will help large and open the door for moving the capital account."...