CCB breaks dim sum drought

China's second-largest lender sold Rmb1 billion worth of renminbi-denominated bonds in London, the first issue of its kind in almost two months.

China Construction Bank, the country’s second-largest lender by assets, raised Rmb1 billion ($157 million) from a renminbi-denominated bond in London on Monday, ending a lengthy hiatus in the market.

The timing is auspicious as China seeks to extend its financial reach and London tries to cement its role as a renminbi-trading hub, with Chinese President Xi Jinping set for his first state visit to the United Kingdom later this month, 10 years after the last such visit by a Chinese president.

Before CCB, French lender Societe Generale was the last offshore renminbi borrower, raising Rmb110 million in five-year bonds in late August, according to data provider Dealogic.

CCB, which is rated A1/A/A, initially went out with a yield guidance of 4.55% before tightening it to five basis points either side of 4.35%. The final pricing of the two-year note was settled at 4.30%.

Syndicate bankers said the CCB deal offered a slim concession to its nearest comparable – its own 3.8% September 2017 deal, which traded at 99.592 for a yield of 4.557% in the secondary market. They added that it would likely resettle the entire market.

“CCB’s new print will set the benchmark for the [offshore renminbi bond] market as the issuer basically ignored the tepid liquidity in the secondary market,” a person familiar with the deal said. “The pricing in the secondary market is not very reliable so it won’t be very meaningful to benchmark this deal to any existing comparables.”

A bond fund manager said the latest CCB deal did not look overly attractive given where the existing two-year bond was trading. 

Demand for the unrated Reg-S deal was nonetheless robust, supported by CCB's solid financial status as a state-owned lender and the sole renminbi clearing bank in London. The order book jumped from Rmb2 billion at 11am to Rmb5.5 billion at 4:30pm Hong Kong time once investors began to place their orders, according to sources familiar with the deal.

CCB International, Standard Chartered, and HSBC, are the joint global coordinators, while BNP Paribas and UBS joined the trio as joint lead managers.

Renminbi push

CCB was appointed as the official renminbi clearing bank in London during the visit of Premier Li Keqiang to the UK capital in June 2014, reinforcing Beijing's ongoing efforts to globalise the Chinese currency and challenge the dollar's dominance. 

Now its Xi's turn to carry that message a decade after the last Chinese head of state, President Hu Jintao, visited Britain in 2005. The City of London is the largest foreign exchange trading centre for the Chinese currency aside from Hong Kong.

Companies globally – primarily Chinese financial institutions – have raised $16.2 billion-worth of offshore renminbi bonds so far this year, compared with $26 billion in the same period a year earlier, Dealogic's data shows.

Data published last week by payment services provider Swift also showed the renminbi overtaking the yen to become the fourth most used global payment currency. That was followed on Thursday by the launch of phase one of China's international payment system CIPS, which will provide settlement and clearing services for cross-border renminbi transactions by financial institutions.

“The launch of CIPS will bring China closer to having a major currency for both trade and investment purposes," Neil Ge, chief executive of DBS China, said in a statement.

That is significant for foreign banks because renminbi-denominated cross-border trade settlement was worth Rmb6.55 trillion yuan last year, accounting for more than 20% of China’s trade volumes, up from 1% in 2010. It is expected to climb to more than 50% by 2020, according to HSBC's estimate.

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