The UK government has begun the planned sale of its renminbi bond, the world’s first non-Chinese sovereign bond in the currency.
The government has appointed three banks — Bank of China, HSBC and Standard Chartered — to help arrange the transaction, according to its website. The selection of the banks follows “a fair and rigorous process,” the government said.
The size of issuance has not been released but the government earlier said the renminbi notes would be in a similar size to a Rmb2 billion ($325 million) bond issued by China Development Bank in London last month.
There will be an investor presentation in London on Monday. Further details of the transaction will be announced by the three banks, the Bank of England and HM Treasury, the government said.
The offshore renminbi bond, or dim sum, by the UK government is largely symbolic, due to the small size of proposed deal, but nonetheless underscores its efforts to deepen the financial links between London and China.
“With the renminbi internationalising and becoming an important global currency, it does make sense for the British government to issue the bond to signal its important status as a financial centre as well as an offshore renminbi hub,” said Vijay Chander, an executive director at Asia Securities Industry and Financial Markets Association, an organisation led by senior bankers and buy-side managers.
Proceeds of the bond will be used to finance the nation’s reserves. Currently, UK only holds reserves in US dollars, euros, yen and Canadian dollars. The dim sum issuance signals the potential of renminbi as a future reserve currency.
The dim sum market is gaining ground with foreign issuers and investors as China accelerates efforts to internationalise its currency and other governments jostle for a piece of the action.
The pie is growing fast. The first half of this year saw dim sum bond issuance of Rmb227 billion, or 74% of last year’s total, and independent research firm Aite Group estimates that total issuance by year-end will be double that.
Bigger stakes makes the competition among dim-sum trading hubs more acute.
London, the biggest financial centre in the European time zone and the world’s leading foreign exchange hub with a 40% share of global activity, is pushing hard to compete with Hong Kong, the largest offshore renminbi hub by deposits. Hence the government’s bond issue.
“To be the first Non-China sovereign to issue a dim sum bond will catch a lot of attention,” said Andrew Stephen, Asian head of private placements and local currency issuance with Deutsche Bank. “The bond issue will go some way towards promoting London's credentials as an important hub for the currency among other major European financial centres.”
But London is hardly ordained to attract the most liquidity. Singapore has had a small head start, thanks to its infrastructure providing easier access to renminbi locally in the form of a nominated clearing bank. As of June, total renminbi deposits in Singapore were 84% higher than a year earlier, at Rmb254 billion.
Other countries that have traditionally had strong trade or investment ties with China, such as Korea, Germany, France and Luxembourg, are also seeking a piece of the offshore renminbi action.
“I believe by 2020 we will see a three-horse race between London, Singapore and Hong Kong for supremacy,” said DiCocco, Asia-Pacific head of sales and relationship management for BNY Mellon’s treasury services business. “with Hong Kong probably continuing to lead the way.”