More Chinese and global issuers and investors are expected to be drawn to offshore yuan bonds in Hong Kong and elsewhere, thanks to the currency’s cost efficiency, according to investment bank China International Capital Corporation (CICC).
On Wednesday, China’s Ministry of Finance sold 12.5 billion yuan (US$1.7 billion) worth of bonds in Hong Kong, with tenors ranging from two to 30 years. The ministry has issued sovereign bonds in the city for 17 years in a row, totalling 366 billion yuan as of last year, which is part of Beijing’s strategy to support Hong Kong as the offshore yuan business hub. The latest “dim sum” bonds were oversubscribed by 1.86 times and pay a 1.75 per cent to 2.37 per cent coupon annually.
The issuance came earlier than it did in years past to allow global investors to invest in high-quality assets and increase the supply of offshore yuan financial assets in the market, according to Bank of Communications‘ Hong Kong branch, the issuing agent.
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Yuan financing has been in demand due to the wide interest-rate differential between the US and China, with Beijing keeping its interest rates low to support the economy.
Mainland Chinese government agencies, state-owned enterprises, Hong Kong companies and Singaporean investment firm Temasek Holdings have been involved to take advantage of cheaper borrowing costs. And interest was expected to remain high this year, according to Zhang Xing, the head of fixed income at CICC’s investment banking department.
“Chinese issuers’ overseas debt denominated in yuan surged 32 per cent year-on-year in 2024 thanks to the lower yuan interest rate and the cost-saving cross-currency swap trend,” Zhang said.
CICC has been one of the top bookrunners for Chinese issuers seeking to raise capital on the international debt markets. It was credited with around US$5 billion in capital raised from 244 deals in 2024, just behind Bank of China’s US$5.3 billion from 170 deals, according to data compiled by Dealogic.
Swapping offshore yuan into US dollars was more cost-effective than directly financing in US dollars, Zhang said, as some large deals last year enjoyed savings of around 30 basis points.
A teller counted money at a bank in China’s Anhui province. Photo: Chinatopix via AP alt=A teller counted money at a bank in China’s Anhui province. Photo: Chinatopix via AP>
