Yuan bonds an easier sell as curbs eased

Yuan bonds an easier sell as curbs eased

Tuesday, September 07, 2010

Sales procedures have been simplified for yuan-denominated bonds, just in time for a launch by Bank of China (3988) tomorrow.
Banks were notified of the streamlined sales procedure, pushed as a pilot scheme by the Hong Kong Monetary Authority, yesterday.

The relaxation only applies to "non-sovereign plain vanilla bonds" - which are products that are not leveraged or come with embedded derivatives - issued by those with a track record.

Investors will not have to undergo audio recording sessions - which were put in place in wake of the Lehman Brothers minibonds saga - as long as their risk assessments matches that for the bond products.

Distributing banks will make a standardized risk disclosure statement to facilitate the procedure. The bonds can also be sold at designated counters inside the "green zone"- within which normally no transaction of investment products can be conducted.

BOC will launch two tranches of the yuan bond with maturities of two and three years for a bond yield of 2.65 percent and 2.9 percent per annum, seeking to raise up to five billion yuan (HK$5.72 billion) from retail investors.

The minimum that investors will have to cough up to buy into the product is about 10,000 yuan, sources said.

More than 10 local banks will help distribute the product. DBS Hong Kong rates its risk level at three in a range of one to five, while Fubon Bank and Bank of Communications (HK) give it a rating of just two.

Demand is expected to be hot amid the current low interest rate environment and the potential strengthening of the yuan, despite the yield offered being low, market observers and fund managers said.

"Given the current interest rate level, market demand for a new yuan bond is likely to be high," said Wesley Kong, director of fixed income investment at Hai Tong Asset Management (HK).

Meanwhile, Russian aluminum giant UC Rusal (0486) is also seeking to launch yuan corporate bonds, following the fast-food chain McDonald's. But Rusal's yield may be higher than the 3 percent McDonald's offered as it has no credit rating yet.

The yield of Rusal's yuan bond may be 5.5 percentage points above McDonald's and it may sell at least US$100 million (HK$780 million) worth of bonds to attract international investors, a fund manager at Union investment, Surgey Dergachev, told Bloomberg.

China Development Bank and Export-Import Bank of China have also received the green light to issue yuan bonds of up to five billion yuan each in Hong Kong this year.

MANDY LO and BETH YE