HSBC issues first renminbi bond in London

HSBC priced a Rmb2 billion ($317 million) three-year international renminbi bond early this morning — the first to be launched outside of Hong Kong. It will be issued in London and listed on the London Stock Exchange.

“We are proud to be able to issue this bond. It represents another step in London’s development as a premier international trading centre for the renminbi and is an early sign of the huge potential that this market represents,” said Stuart Gulliver, HSBC group chief executive in a press release.

The Rmb2 billion bond priced at a yield of 3%, at the revised guidance and at the tight end of the initial guidance of 3% to 3.25%. The coupon was fixed at 2.75% and the bonds reoffered at 99.644. The deal attracted an order book of Rmb4.4 billion from over 100 accounts.

The majority of the deal was allocated to European investors who took up 60%. Hong Kong investors were allocated 20%, Singapore 15%, Middle East 2%, rest of Asia 2% and the US 1%.

HSBC’s renminbi bond was the first to target European investors. While European institutional investors can buy dim sum bonds in Hong Kong, the bulk of such bonds are typically allocated to Asian investors. However, the investor base for dim sum bonds has been broadening of late and HSBC’s deal further underscores that trend.

“It doesn’t make a difference to us as fund managers where a dim sum bond is issued as we can participate as long as it clears through a global clearing house,” said Ben Rudd, executive director, head of overseas investment at Ping An Asset Management in Hong Kong. “However, HSBC’s offshore renminbi bond is significant in terms of market development as it shows how the offshore renminbi market is growing and how demand for renminbi assets is not just from Hong Kong or Asia but global. Growth of issuance outside Hong Kong signifies how this market has the potential to become globalised.”

HSBC’s bond will be listed on the London Stock Exchange Orb (order book for retail bonds) — an electronic platform for private investors trading fixed income securities, which means that retail investors can buy the bonds. It will trade during London trading hours. By investor type, private banks were allocated 46%, fund managers 37%, banks 13% and 4% to other investors.

According to a source, it made sense for HSBC to list the bond in London as it is a UK-listed entity. London has also been making a big push to become a Western hub for the international renminbi business.

At Rmb2 billion, the deal was of significant size, indicating that the renminbi deposit base in London has hit a critical mass, and more issuers could choose to tap that pool of liquidity.

“While European institutional investors can already participate in dim sum bonds issued in Hong Kong, for HSBC, issuing a renminbi bond in London is symbolic and also shows that they think there is enough investor interest in London. Reports show that the renminbi deposits in London have risen to Rmb100 billion, which is a sizeable pool of liquidity. Depending on investor response, we could see more issuers such as the Chinese state-owned enterprises also issue in London,” said Ivan Chung, vice-president at Moody’s.

HSBC was the sole bookrunner and the proceeds are expected to be kept offshore.