The Chinese government issued its first short-term debt in the international bond markets on Tuesday in a move designed to underline the renminbi's growing international importance and highlight strengthening Sino-British ties during President Xi Jinping’s visit to the UK.
The People’s Bank of China raised Rmb5 billion ($788 million) from the sale of a one-year bill after capturing a sizable order book of more than Rmb30 billion from central banks and sovereign wealth funds around the world.
The Chinese central bank initially went out with price guidance of 3.30% before tightening it to five basis points either side of 3.15%. Final pricing of the London listed notes was settled at 3.1%.
By contrast, the yield on one-year sovereign onshore notes was 2.43% according to Bloomberg.
Syndicate bankers said the Chinese central bank’s first-ever overseas offering has set a benchmark for future borrowers and will encourage European companies to raise money directly in renminbi to fund their Chinese investments.
“This landmark transaction by the People’s Bank of China in London brings a strategic message to the whole market as Beijing steps up its efforts to promote the use of renminbi in Europe,” said one source close to the deal.
The source added, “More companies from China and Europe will raise funds in London as it's the world’s largest foreign-exchange hub.”
A second source said Asian investors took up half of the deal, with European investors and a handful of US accounts making up the other half.
"We saw a lot of demand from central banks globally once London kicked in around 2pm Hong Kong time," the source noted.
By investor type, commercial banks took 47%, central banks and public sector funds 38% and fund managers and private banks 14% and 1%, respectively.
The debt issuance – first announced by UK chancellor George Osbone during his visit to Beijing last month – comes alongside about £30 billion in new deals and investments that have been agreed between the two countries.
This should create about 3,900 jobs in UK sectors including the creative industries, retail, energy, health and technology, financial services, aerospace and education, UK Prime Minister David Cameron’s office said in an e-mailed statement on October 20.
The UK government has also raised funds in the offshore renminbi market, the first Western country to do so. Last October it raised Rmb3 billion from a three-year bond that carries a 2.7% coupon.
ICBC and HSBC were joint global coordinators for PBoC's transaction, with Agricultural Bank of China, Bank of China, Bank of Communications, CCB and Standard Chartered as joint bookrunners.