Taiwan bolsters its renminbi market

Taiwanese regulators and investment banks hope the popularity of China's currency will lead to a boom in issuance of renminbi Formosa bonds.
Taiwan - from early February - took only three months to have deposits of Rmb60 billion.
Taiwan - from early February - took only three months to have deposits of Rmb60 billion.

Taiwan’s push to become a renminbi hub appears to be bearing fruit.

Renminbi deposits held in Taiwan, including those of banks’ domestic banking units (DBU) and offshore banking units (OBU), increased from Rmb1.3 billion to Rmb75.8 billion in six months, since renminbi business in Taiwan was officially launched.

The pace is so speedy that Taiwan - from early February - took only three months to have deposits of Rmb60 billion, compared to Hong Kong’s more than one year.

Meanwhile, Taiwan-based companies are increasingly making payments and collecting receipts through offshore renminbi accounts: 24% of the companies are doing so, ahead of Asia Pacific’s other offshore renminbi hubs, Hong Kong (23%) and Singapore (18%), according to a survey this week by Bank of America Merrill Lynch along with SunGard, a private-owned provider of software and processing solutions.

Also, Standard Chartered on Monday announced that its Renminbi Globalisation Index (RGI) will add Taiwan in.

The RGI was created in November 2012,  covering the top three markets in offshore renminbi business - Hong Kong, Singapore and London. Taiwan’s inclusion came in the wake of its growing offshore renminbi businesses and expected policy support from Beijing.

Taiwanese regulators, including the Financial Supervisory Commission (FSC) and the Central Bank of the Republic of China (CBC), have promoted the use of the currency to nourish a domestic renminbi market.

The CBC in January revised regulations governing foreign exchange business and approved an application from the Bank of China’s Taipei branch to become an renminbi settlement bank, which kicked off the Renminbi remittance business in Taiwan.

The FSC now allows foreigners with a fixed residence in Taiwan to open local and foreign currency (including RMB) accounts in local banks, just as local citizens can, and also allows foreigners without a fixed residence in Taiwan to open foreign-currency accounts (including renminbi) in DBUs without restriction.

Furthermore, Taiwan banks are now trying to remove the ceiling on trading in Renminbi cash, which is set at Rmb20,000 per person per transaction.

“All these measures will [remove] the limitation in investment in renminbi products and help issuers come to the renminbi Formosa bond market,” said Arthur Chen, executive vice-president with Yuanta Financial, a holding company of Yuanta Securities.

Six companies have issued such notes to raise a combined Rmb3.9 billion since February, according to the CBC data.

The size is relatively small, compared to Hong Kong’s Dim Sum bonds of Rmb23.8 billion in the first quarter. However, bankers said that, for a newcomer in the renminbi-denominated bond market, the speed suggests faster growth.

That said, during the past two months, the pace of Taiwanese renminbi Formosa bond issuance has slowed down. The reason mainly roots in the mismatch between investors and issuers in the bond pricing.

The average yield of the six bonds is around 3%, with investors asking for more or they will go to Hong Kong or the mainland market for higher yields.

“We believe the [slowdown] is a temporary phenomenon. With the market to be more de-regulated and issuers to know more about Taiwan’s strength, the pricing will be more market-driven and fairer,” said Benjamin Chang, president of Mega Securities.

The FSC in August announced that issuers will no longer seek for ratings if they want to issue renminbi Formosa bonds. And foreign issuers are no longer required to get approval from the FSC for issuing such bonds.

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