RMB Bond Market Rise of the Renminbi

Transcription

1 PRODUCT NAME OR GEOGRAPHY RMB Bond Market Rise of the Renminbi PREPARED FOR: DATE: February 8 th, 2012

2 RMB Bond Market Characteristics Size Pace of growth Regulation / Market Access Supply / Demand Liquidity Investment opportunity 2

3 World Bond Markets in 2011 Source: Dealogic / HSBC 3

4 RMB Bond Market Comparison of Onshore vs Offshore ("Dim S um") S upply 12,000 10,000 Volume of Issuance (RMB bn) 8,000 6,000 4,000 2, Offshore Onshore Source: Dealogic / HSBC 4

5 Offshore RMB ( Dim Sum ) Bond Market Offshore Bond Market Growth and %age of Total RMB Issuance % % Volume (RMB Bn) % 1.0% % % Offshore Issuance (RMB (RMB bn) Offshore as %age of Total Source: Dealogic / HSBC 5

6 Supply / Demand in Dim Sum Market Supply (Issuers) Use of proceeds Keep RMB offshore Limited investment opportunities Negative carry vs overnight BOC rate Repatriate to the mainland (strategic) Subject to regulatory approval by PBOC / SAFE Reduces total balance of offshore RMB Allows companies to invest in local subsidiaries Swap issuance back to G3 currency for GCP (tactical) Demand (Investors) RMB deposit base Cross-border trade settlement USD/CNH FX transactions Retail deposit growth View on currency appreciation Hot money from retail/private Banks and hedge funds Desire to mitigate negative carry More international fund / asset managers are setting up dedicated RMB bond funds 6

7 Repatriating Dim Sum RMB Proceeds to the Mainland Approvals/Registration Required (WC/CAPEX): Shareholder Loan Equity Injection Yes Yes SAFE!! MOC!! PBOC!! *SAFE: Filing required, not approvals *Generic FDQ Example: - Total Investment = $500 - Registered Equity = $300 - Total FDQ = $200 ($500- $300) - If Existing FD = $80 - Available FD = $120 ($200- $80) (Refer Appendix for further details on FDQ) Legend SAFE: State Administration of Foreign Exchange PBOC XBO: People s Bank of China Cross Border Office NDRC: National Development and Reform Commission PRC: People s Republic of China Note: MOFCOM Companies or MOC: may Ministry already of have Commerce existing Foreign Debt in use (e.g.: $80), in which case available FDQ amount will be lower. This available FDQ amount is what can be funded with RMB Bond proceeds ($120 in this case) ^ There is not an uniform direction on whether offshore loan proceeds can be used to repay onshore debt, it differs city from city Considerations SAFE MOFCOM Ministry of Commerce PBOC People s Bank of China Use of Proceeds Process Shareholders Loan More flexibility in taking money out of China, for the principal amount only As long as the borrower company has not used up its foreign debt quota Yes. Local SAFE registration is needed No. Only if the company applies to increase Registered Capital in order to increase FDQ* No. Settlement bank is now monitoring the process Working Capital, Capital Expenditure, Equity Injection (China Holding Company only). General Corporate purposes allowed. ^Repay onshore debt. Shareholder loan is treated as foreign debt, and needs to be registered with local SAFE Issuer does not need to receive PBOC approval to repatriate the offshore RMB proceeds into China, settlement bank now is taking the monitoring role As long as the loan amount does not exceed the FDQ (difference between the total investment and registered capital), approval from local SAFE is enough To apply for the increase of the FDQ: submit application to local MOFCOM to increase the Registered Capital Equity Injection Can only take money out of China via dividends The issuer (offshore parent company) should consider the source of RMB repayment on maturity date Yes. Local subsidiary needs to register with Local SAFE Yes. Approves registered capital of foreign Corporation s investments in China No. Settlement bank is now monitoring the process New Project Set Up, Increase Investment, etc. ^Repay onshore debt. The MOFCOM (HQ) or its Bureaus in provinces will approve the registered capital of foreign companies with investments in China. Local MOC will be responsible for the approval of foreign investment lower than USD30m (for industries that are supported by NDRC) or lower than USD5m (for industries that are restricted by NDRC). MOC s approval must be obtained for using RMB instead of USD for capital injections The Company needs to register with local SAFE, who will then report to central SAFE 7 7

8 Supply / Demand in Dim Sum Market 700 RMB Deposit Base in Hong Kong RMB (bn) FX Rate Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep RMB Deposits (LHS) USD/CNY Rate (RHS) USD/CNH Rate (RHS) Source: Dealogic / Bloomberg / HSBC 8

9 Supply / Demand in Dim Sum Market RMB Deposit Base in Hong Kong RMB (bn) FX Rate Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov RMB Deposits (LHS) USD/CNY Rate (RHS) USD/CNH Rate (RHS) Source: Dealogic / Bloomberg / HSBC 9

10 USD/CNY vs USD/CNH FX Spot Market Offshore deliverable market is often being referred as CNH 1 Market turnover increased gradually to around USD1.5bn daily The strong demand in CNH 1 drove the gap to a wide of 1800 pips in Oct 201 Strong arbitrage flows and exporter selling bring the CNY and CNH 1 much closer Mid Oct 2010: CNH 1 was traded at a premium as much as 3% at one point due to expectation of RMB revaluation Dec10: CNY -CNH 1 spread narrow due to HKMA announcement on the tightened conversion of RMB for cross border trade settlement transaction 22 Sep 2011: CNH 1 was traded at a discount as much as 2.5% due to USDCNH 1 short-covering on risk aversion USDCNH 1 traded higher than USDCNY end of Sep 2011 due to strong shortcovering on risk aversion Jul 18-Aug 15-Sep 13-Oct 10-Nov 08-Dec 05-Jan 02-Feb 02-Mar 30-Mar 27-Apr 25-May 22-Jun 20-Jul 17-Aug 14-Sep 12-Oct 09-Nov Offshore Onshore 1. CNH is the name used in the market to refer to offshore deliverable RMB Source: HSBC, Reuters Source: Bloomberg / HSBC 10

11 Onshore vs Offshore RMB Yield Curves China Government Bond Yield Curves -- Onshore vs Offshore Yield (%) y 2y 4y 6y 8y 10y Onshore CGBs Tenor Offshore CGBs Source: Bloomberg / HSBC 11

12 HSBC Undisputed Leader in the Dim Sum Bond Market CNH Bond League Table (2012YTD) HSBC executed ground-breaking transactions Lotte Shopping RM750mn due 2015 America Movil RM1bn due 2015 Baosteel Group Corporation RM1bn due 2013 RMB2.1bn due RMB500mn due 2016 Lafarge Shui On Cement RMB1.5bn due Feb 2012 Feb 2012 Joint Global Coordinator, Sole Rating Advisor, Joint Lead Manager and Nov 2011 Nov 2011 BSH Bosch & Siemens RMB850mn due RMB750mn due 2016 RMB400mn due 2018 Sep 2011 Air Liquide Finance RMB1.75bn Fixed Rate due 2016 RMB850mn Fixed Rate due 2018 Sep 2011 BP Capital Markets PLC RMB700mn Sep 2011 Tesco PLC RMB725mn Aug 2011 China Ministry of Finance RMB5bn, Retail RMB15bn, Institutional Fixed Rate due 2013 Joint Coordinator, JLM and Aug 2011 Fonterra Co-operative Group Limited RMB300mn June 2011 China Ping An Insurance Overseas (Holdings) Limited RMB2bn Sole LM and May 2011 Volkswagen RMB1.5bn 2016 May 2011 Source: Bloomberg as of 3 Feb 2012 Towngas RMB1bn 2016 March 2011 Unilever N.V. RMB300m March 2011 International Finance Corporation RMB150m 2016 January 2011 World Bank RMB300m 2013 January

13 Many firsts for HSBC Of the 12 Multinational Corporations ( MNCs ) which have accessed the Dim Sum bond market since 2011, HSBC was on 11 transactions HSBC s unrivalled knowledge on the repatriation of funds onshore and our universal distribution platform mean issuers can rely on a safe pair of hands during their maiden CNH bond issue Lotte Shopping RM750mn due 2015 Feb 2012 HSBC MNC Credentials (2011 YTD) America Movil RM1bn due 2015 Feb 2012 IDBI Bank Limited RMB650mn due Nov 2011 Lafarge Shui On Cement RMB1.5bn due Nov 2011 BSH Bosch & Siemens RMB850mn due RMB750mn due 2016 RMB400mn due 2018 Sep 2011 Yum! Brands, Inc RMB350mn Sep 2011 Air Liquide Finance RMB1.75bn Fixed Rate due 2016 RMB850mn Fixed Rate due 2018 JLM and Sep 2011 BP Capital Markets PLC RMB700mn Sep 2011 Tesco PLC RMB725mn Aug 2011 Fonterra Co-operative Group Limited RMB300mn June 2011 Volkswagen RMB1.5bn 2016 May 2011 Unilever N.V. RMB300m March

14 HSBC Award-winning Global Bond House Recent awards confirmed HSBC s position as the #1 Asian Bond House 2011/2010 #1 Global Primary Bond House Bond House of the Year Best Domestic Bond House Best Dim Sum Bond House SSAR Bond House of the Year Best International Bond House Best Local Currency Bond House Best Sovereign Bond House Best Debt Arranger Best Loan Arranger Asian Best Debt House Best Bond House Best Offshore RMB Bond and Euromoney commented: "For its sheer consistency across all emerging regions, in both G3 and local currencies, and the quality of its execution, HSBC has had a standout year....no other bank has as comprehensive a product offering as HSBC." IFR commented: "In a topsy-turvy year, when bond arrangers had to innovate and adapt to stay ahead of dramatically shifting market conditions, HSBC did just that, while, at the same time, maintaining its presence in the sovereign, quasi-sovereign and financial sectors that account for the bulk of Asia s international bond business. 14

15 RMB Bond Market Summary Onshore Offshore Size Top 5 world bond market Small Pace of Growth Maturing Rapid growth Issuers Regulation Market Access Supply / Demand Liquidity MOF, Policy Banks and other Public Sector names (94% public sector) Heavily regulated Issuers: Very limited access for international issuers able to issue Panda bonds. No issuance since 2006 Investors: Inaccessible save for a limited number of investors with QFII quotas (RMB222bn as of Jan 2012) or RQFII quotas (RMB20bn as of Jan 2012) Balanced and steady state Deep Diversified base of international MNCs, other corporates, financials, HK branches of China banks and the MOF (45% private sector) Unregulated by mainland providing proceeds remains offshore As straightforward as Eurobonds in any other currency Balance can swing wildly: -- moves in USD/CNH FX -- variances in offshore RMB deposit base Improving Investment Opportunity Moot for those without a QFII quota Immediate access to RMB bonds for international investors Projection As the deregulation of the RMB market continues we will one day see a continuous connected RMB market rather than segregated on and offshore markets. When this happens the sheer size of the RMB market and projected growth of the China economy will ensure that all international capital markets players will pay attention 15