preferred shares

China in renminbi push through preferred shares

The Chinese government hopes the first offshore preferred share issue will expand the currency’s overseas market.

Bank of China and Industrial and Commercial Bank of China are planning to issue $12.3 billion worth of preferred shares in Hong Kong with a triple-currency structure.

The issue of preferred shares would be the first from Chinese companies in the city and the purpose of multiple currencies is to attract a diverse set of investors, according to multiple sources.

BOC will tap the offshore market by October to issue up to Rmb40 billion shares and ICBC in November for Rmb35 billion in US dollars, euros and renminbi, said the sources.

Sources said that, among the three tranches in the offerings, the US dollar one could be the largest in size and renminbi the smallest, given the different sizes of the fixed-income markets in the three currencies.

However, the central government is pushing the banks to sell a bigger portion of renminbi notes to about one-third of the total fundraising sizes - or Rmb13 billion in BOC’s case. It suggested to sponsors that it would like to see more supply of renminbi products, said one source.

The Chinese government wants to boost the use of and investments in offshore renminbi by investors through the opportunity, said another source.

But some banks expressed doubts as to whether investor demand is enough to embrace such a big tranche, compared to the usual size of an offshore renminbi bond of Rmb500 million to Rmb1 billion.

Until now the largest size of an offshore renminbi offering is the Rmb4.5 billion bond issued by the country’s policy bank China Development Bank in November in Hong Kong. The deal was upsized by 50% from the original Rmb3 billion and was overall 1.22 times covered at last.

“We are not sure whether it’s possible to find so much demand in one deal in such a market,’ said a banker on one of the transactions.

The continuous growth of Hong Kong’s renminbi deposits ended this year and contracted for a second month in a row in June by the most since 2011, according to a BNP Paribas report.

Another challenge for the first offshore renminbi preferred share issue is that there is no benchmark for pricing, which may increase the difficulty of gauging prices with investors, said the banker.

BOCI is leading the onshore parent’s transaction with BNP Paribas, China Merchants Securities International, Citi, Citic Securities International, Credit Suisse, HSBC, Morgan Stanley and Standard Chartered.

ICBCI is handling its onshore parent’s deal with four foreign banks — Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs and UBS, and it is not known yet if ICBCI will invite other Chinese banks to join.

¬ Haymarket Media Limited. All rights reserved.

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