HSBC Bank (China) said on Wednesday that it had become the first locally incorporated foreign bank to participate in the underwriting of a renminbi-denominated financial bond in China.
Earlier this year, the People's Bank of China (PBOC) gave broad approval for HSBC and more than a dozen other overseas banks incorporated on the mainland to be involved in this growing sector of China's financial markets, and a similar approval in principle for them to underwrite corporate bonds too.
The approval is a further sign that China is opening its onshore capital markets to greater foreign participation. Already, joint venture securities firms formed with local partners by Goldman Sachs, Deutsche Bank and Credit Suisse, and UBS, through partly-owned UBS Securities, have been active underwriters of financial bonds. The total size of China's bond market now exceeds Rmb16 trillion ($2.34 trillion).
HSBC China joined a group of more than 10 domestic Chinese banks to underwrite a two-tranche Rmb5 billion ($733 million) issue for Bank of Shanghai, in which HSBC has an 8% stake. The transaction, which was priced on Tuesday, was made up of a Rmb2 billion three-year fixed-rate tranche set at 3.65% and a Rmb3 billion five-year floating-rate tranche paying 92 basis points over the PBOC one-year deposit rate.
Richard Yorke, president and chief executive officer at HSBC China, commented in a news release that: "We are very pleased to be the first foreign bank to participate in the underwriting for bond issuance of a Chinese financial institution. This marks a new milestone in building China's capital markets where HSBC is keen to play an active part."
David Liao, managing director, head of global markets at HSBC China, added: "There is tremendous growth potential in China's debt capital market and we will endeavour to be a contributing member of the underwriting community."
Issuance of corporate and financial bonds targeted to the domestic markets has amounted to the equivalent of more than $160 billion so far this year, according to data provider Dealogic. That's up from $65 billion in 2008 and just $9 billion in 2004.
"The Chinese authorities are encouraging the growth of all sectors of the domestic market, partly to shift corporate and municipal government borrowing away from their dependence on banks, but also because they see it as a healthy and necessary step towards more efficient local capital markets", said a market analyst.
HSBC has established a market share among the top 10 traders of Ministry of Finance bonds since it was authorised as an underwriter of such issues in 2004. HSBC China is headquartered in Shanghai and started operations as recently as April 2007, but was one of the first foreign local banks to be locally incorporated on the mainland. Others include Citigroup and Standard Chartered.