Chinese Banks Speeds Up Overseas Expansion Yuan-Denominated Bonds Welcomed in Canada

Chinese Banks Speeds Up Overseas Expansion Yuan-Denominated Bonds Welcomed in Canada

After the launch of RMB (CNY) bonds last year in British Columbia, Chinese banks are continuing to develop new governmental clients and plan overseas business expansion, especially in North America.

“Some provincial governments in Canada are interested in launching RMB bonds, some other provinces are also considering in doing so in the near future” said Mr. Jiao Liang, Financial President of Bank of China Canada branch. With British Columbia’s issuance of the RMB bonds end of last year, Chinese banks are speeding up their overseas business expansion.

Jiao Liang said that, some provincial governments of Canada have excellent credit rating, therefore financing interests are expected to be lower. With the quick development of trade between the two nations, Canada has advantages in issuing yuan (RMB)-dominated bonds. Last year, British Columbia successfully issued RMB 2.5 billion bonds within a year period, because its government credit rating is AAA, market reaction was very strong.

British Columbia officials said the plan was to sell 500 million yuan worth, but oversubscribing pushed the amount raised up five times

This is the first time a foreign government has issued offshore yuan bonds. Mike de Jong, finance minister of Canada's westernmost province, said officials had intended to raise only 500 million yuan but the bonds were largely oversubscribed.

Central banks and foreign institutions snapped up 62 percent of the bonds. Fund asset managers bought 18 percent. Investors in Hong Kong took 46 percent of the bonds, and 40 percent went to U.S. investors.

The bonds carry a yield of 2.25 percent. This is 10 to 15 basis points lower than bonds sold by the Chinese government, said HSBC, the sole book runner of the issuance. The bonds will be listed in Luxembourg.

Jim Hopkins, assistant deputy minister of British Columbia's finance ministry, said earlier that the province wanted to be an early entrant in the offshore yuan market, which is expected to grow rapidly and benefit participants in terms of lower trading cost with China and more diversified financing and investment channels. 

According to Bank of China, up until the end of 2013, its number of branches across Canada reached eleven; asset size increased twice than three years ago, turnover level was also significantly improved. With compliance to local financial regulator’s requirement, its non-performing asset was zero in several consecutive years, which was supported by the local governments and the business sectors. It has offered financing support to many Chinese and Canadian enterprises, including CNOOC, Sinopec, Bombardier and Sunshine Oil Sands, etc.

At the same time, ICBC (Industrial and Commercial Bank of China) Canada also entered the Canadian market by acquiring Canada’s Bank of East Asia in 2010, and established seven branches in Toronto and Vancouver areas. The newly opened (Jan. 8th. 2013) Calgary Branch was its eighth in Canada, located at Canada’s oil center – Calgary’s CBD. Reports said that Canada’s province of Alberta had become the center of China’s “outgoing” enterprises, about 75% of Chinese companies’ investment in Canada was injected here, and it’s now home to many Chinese extra-large enterprises, including CNOOC, Sinopec and PetroChina.

An official with the ministry said the offshore yuan bond market was weighted down a bit in the second and third quarters of this year because of the anticipated impact of the U.S. Fed slowing its so-called quantitative easing policy. He expected the market to improve as investors change their opinions.

RMB’s internationalization is an important opportunity for Chinese banks’ overseas expansion to become mainstream banks in the international market; it will focus on RMB’s cross-border business to create a competitive globalized product system in the future. China will gradually open bond and stock markets to overseas investors, with the establishment of Shanghai FTZ, detailed policies of RMB’s cross-border flow will be determined by the end of Q2 this year, which will bring new opportunities to Chinese banks’ overseas business.

By Courtesy of China Security News


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