Get ready for more dim sum bonds in Hong Kong
May 25, 2012 | BY
clpstaff &clp articles &The NDRC has released a Circular to develop Hong Kong's offshore RMB market a week after approving new dim sum bonds for four state-owned firms
On April 24, China's top economic planning agency, the National Development and Reform Commission (NDRC) announced its approval for four state-owned firms to offer renminbi bonds in the Hong Kong market.
Three power companies and a mining company – China Minmetals, Guangdong Nuclear Power, Huaneng Power and Datong Power can offer Rmb18.5 billion ($2.93 billion) in bonds. Previously, only one state-owned non-financial institution, Baosteel Group, had been given approval to issue dim sum bonds in October last year.
“This is all part of the steps the Chinese government is taking to help with the internationalisation of the currency,” said Connie Heng, a partner at Clifford Chance in Hong Kong. “Previously domestic Chinese companies were not permitted to tap the international bond market for funding, this move will create a new pool of issuers and help with the development of the offshore RMB and international capital markets,” she added.
This expansion of the dim sum bond market provides greater investment avenues for international Renminbi holders. The government hopes to promote the Renminbi as a reserve currency while offshore investors are increasing their holdings on the expectation that the currency will rise against the US dollar.
Besides the internationalisation of the currency, other forces are at play here. “State-owned enterprises are always looking for M&A opportunities and the international bond market is a new channel of funding for their offshore M&A activities,” said Heng.
Before the release of the Circular, dim sum bonds were covered under Interim Measures released in 2007. Under the Measures, approvals for non-financial institutions to issue Renminbi bonds were granted on a discretionary basis. While there are minor changes from the 2007 Measures, the Circular now formalises the approval process and sets out a regulatory framework.
“The fact that a Notice setting out the approval process was issued shows that the NDRC is starting to loosen its grip on non-bank domestic Chinese corporations issuing offshore bonds,” said Heng.
The changes include removing a 30-day requirement for the issuer to return the proceeds to the PRC. However, under the new Circular the proceeds must be used to invest in fixed asset investment projects in line with China's macroeconomic policies.
While the latest Circular applies to all non-financial institutions, only time will tell how many and which types will be granted approval. State-owned enterprises are likely to be the first group to receive approval as private companies will continue to find it hard to meet all the requirements set out by the NDRC.
By David Tring
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