UAE may become 1st Gulf state to issue yuan bonds

DUBAI, February21 2012: Emirates NBD, the largest bank in the UAE by assets, is likely to be the first bank from the Gulf to issue yuan-denominated bonds amid a growing appetite among global fund managers to tap the nascent market for the so-called “dim sum” bonds.Emirates NBD said on Monday that it has mandated Emirates NBD Capital Limited, HSBC and Standard Chartered Bank to arrange investor meetings in Hong Kong and Singapore ahead of the proposed CNH, or Offshore Chinese Renminbi, denominated bond, under the bank’s $7.5 billion medium-term notes programme. The roadshows kick off tomorrow. The bank said in a statement that the yuan — also known as the renminbi — bond issue would be subject to market conditions. “The offshore renminbi bond market has evolved quite drastically over the last few months. Emirates NBD’s foray into offshore yuan market, which has huge lending potential but underused, is expected to set a new fund-raising trend in the Gulf region,” an analyst said. The Dubai lender has been reportedly considering a Swiss franc-denominated issue, and the surprise move comes as more global fund managers venture into the market for yuan bonds sold outside mainland China, a trend that players hope will add liquidity to a market central to Beijing’s effort to expand the use of its currency. Reuters quoted an official at the Emirates NBD as saying that the lender had been weighing up Swiss franc and yuan bond options simultaneously. Emirates NBD’s move comes in the wake of a bilateral currency swap agreement worth 35 billion yuan between the UAE and China last month. The deal was part of a drive to boost two-way trade and investment, which have been on a consistent upswing for the past one-decade. In the first 11 months of 2011 trade between China and the UAE grew to $32 billion in value, up 38 per cent. Chinese exports to the UAE, worth $24.3 billion, dominated that trade. According to analysts, the growing investor attraction for “dim sum” bonds is on soaring expectations that the Chinese currency will continue to appreciate versus the dollar. Analysts at HSBC Holdings said average yield on dim sum bonds has risen to 3.8 per cent from 2.35 per cent since mid-2011, and most of these bonds now trade at higher yields than comparable US dollar bonds. The boom in the dim-sum market in 2011 was triggered by Chinese government’s decision to allow the currency to trade offshore. However, some analysts expect yuan’s appreciation to slow this year as China considers boosting its exports. After an explosive growth, the yuan bond has fallen into the doldrums this year, as investors have rushed to buy dollar-denominated debt. This year, the amount of US dollar-denominated bonds issued by companies and countries in Asia has surged, pushing aside “dim-sum” bonds. The market’s stumble has coincided with a decline in the currency’s popularity. The amount of yuan parked in Hong Kong is down 6.2 per cent from its peak in November, analysts said.