Standard Chartered has raised over Rmb1bn (US$158.2mn) in euro commercial paper (ECP) issuance out of London, further aiding London’s efforts to become an offshore trading centre for Chinese renminbi (Rmb).
The bank claims this makes it the largest issuer of Rmb ECP out of London.
Listed on Euroclear, the ECP issuance will increase the availability of Rmb liquidity to be specifically used for trade finance.
“Trade finance is the key to building liquidity in an offshore centre,” says Ben Hung, chief executive officer, Standard Chartered Bank.
“Close collaboration between London and Hong Kong will help interlink liquidity between the two offshore centres and further support the growth of Rmb-denominated global trade finance, including those originated from Hong Kong,” he adds.
John Han, head, global markets, Hong Kong, at Standard Chartered tells GTR that the Chinese government is particularly keen to build up their off-shore liquidity pool through the use of trade settlement in Rmb.
“They don’t want to see a build- up of a liquidity pool through speculation using financial instruments. I describe their approach to be similar to that of a “toothpaste approach” where they try to squeeze out a little bit everyday to see how it goes,” he explains.
According to Standard Chartered, the ECP issuance bridges the tenor gap between long-term dim sum bonds and traditional short-term deposits for investors.
ECP issuances have relatively short-term tenors of approximately three to six months. Trade finance transactions carry similar tenor lengths so the bank was able to match fund the tenors.
“Raising funds via the ECP programme is generally a bit cheaper than doing the dim sum bonds in UK, and we already had this debt programme in place so it was easier,” adds Michael Vrontamitis, head of product management, east, transaction banking.
Standard Chartered’s ECP programme has been in place since 2009, but it has only issued Rmb ECP during the last four to five weeks. To date, most of the investors have been money market funds and some sovereign entities, with the majority of the investor base coming from Europe and the Middle East.
The bank believes that the ECP issuance offers investors the opportunity to capitalise on the continued internationalisation of the Rmb.
“SCB is a strong issuer in market place and has been upgraded to AA-. We are confident that our paper is attractive and we do see an avenue to provide a Rmb asset class for investors,” comments Vrontamitis.
Demand for Rmb trade settlement services is growing, with Standard Chartered estimating that at the end of the first quarter of this year 11% of all trade with China is being settled in Rmb.
“We do see demand increasing. We are at a critical point where multinationals make up about 50% of China’s trade flows globally and what we are seeing are these multinationals are looking at redenomination,” explains Vrontamitis.
He notes that companies could achieve a 2-3% cost saving by switching their invoices to Rmb from other foreign currencies.
“The growth of Rmb will depend a lot on education around the use of Rmb as an alternative currency, explaining how corporates can use Rmb to hedge and manage their China exposures.
“It is in the early stages. There is some way to go. The first step is getting the multinationals to understand the benefits,” he adds.
Standard Chartered timed its announcement with the hosting of the first Hong Kong-London forum to discuss the development of international Rmb business, held on May 22 in Hong Kong.
Senior representatives from Bank of China, Barclays, Deutsche Bank, HSBC, JP Morgan, RBS and Standard Chartered all attended the meeting, along with UK chancellor George Osborne and Norman Chan, the chief executive of the Hong Kong Monetary Authority (HKMA).
The meeting follows the signing of an agreement between HKMA and the UK government in January this year.