Australia’s largest state by GDP is set to issue Australia's first-ever renminbi government bond, potential raising as much as Rmb1 billion ($167 million).
New South Wales Treasury Corporation (TCorp) plans to launch the one-year bond on Wednesday in order to diversify its funding and help the state capital Sydney evolve as an offshore trading hub for the Chinese currency.
“TCorp has seen strong levels of investment from the Asian region in our Australian dollar bonds and issuance in renminbi bonds will provide an opportunity to expand and diversify this investor base,” said Steve Knight, TCorp’s chief executive.
The move follows recent announcements by the Australian and Chinese governments designating Sydney as a renminbi settlement hub.
The People’s Bank of China named the Sydney branch of Bank of China as its clearing bank in Australia for the currency after inking a memorandum of understanding with the Reserve Bank of Australia. It also assigned a Rmb50 billion quota for the renminbi qualified foreign institutional investors scheme, or RQFII, in Australia.
TCorp has mandated ANZ and Bank of China to lead the bond which will be issued via its Euro Medium Term Note Programme.
Helping matters is the visit to Australia this week of China's President Xi Jinping.
“The deal is understandably [very] politically driven. However, it’s the first [step] and an important step to build an offshore bond market there,” said a banker on the TCorp offering, who declined to be named.
“Like all the other offshore renminbi bond markets, more issuers will tap the market after the infrastructure is set up,” the banker said.
When pricing the deal, TCorp will look to other renminbi-denominated international bond issues already in the sovereign and public sector space such as the Province of British Columbia, International Finance Corporation and the UK government, the banker added.
Big bilateral business
The looming NSW renminbi bond also underlines the two countries’ desire for more bilateral business. On November 17, Australia and China announced the conclusion of decade-long talks for a China-Australia Free Trade Agreement.
As a result, China’s investments in Australia could grow sevenfold to $300 billion by 2020, Westpac Banking Corp said.
China is Australia's largest trading partner, with goods and services exports exceeding $130 billion in 2013, accounting for more than a third of Australia’s total exports, according to China’s Ministry of Commerce.
“The closer financial and trading ties between Australia and China will see opportunities grow significantly in the years ahead,” TCorp’s Knight said.