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DEBT CAPITAL MARKETS
RMB Globalization and Asian Bond Market Development
Date: September 2012Stephen WilliamsHead of Debt Capital Markets, Asia-Pacific
2
Contents
Section 1Section 2
RMB GlobalizationAsian Bond Market Development
Section 1: RMB Globalization
4
2007
Source: HSBCNote: CNH is the name used in the market to refer to offshore deliverable RMB
2004 2009 – 2010 JUNE 2009
Pilot launch of cross-border RMB trade settlement scheme
JUNE 2010Expansion of cross-border RMB trade settlement scheme
JULY 2010Establishment of the offshore RMB (CNH) market in Hong Kong
AUGUST 2010Onshore RMB inter-bank bond market opened to selected offshore RMB Financial Institutions and central banks
SEPTEMBER 2010 Offshore banks allowed to open CNH settlement accounts
RMB Globalization Timeline
JANUARY 2004CNH personal business allowed
JANUARY 2007CNH Bond issues allowed
JANUARY 2011Mainland Enterprises can make overseas investment in CNH in the form of Overseas Direct Investment
MARCH 20118 offshore banks allowed access to onshore bond market
AUGUST 2011- China MOF sovereign CNH20bn bond issue in Hong Kong- Chinese Vice Premier, Li Keqiang, backs HK as offshore RMB centre- Mainland corporates can issue CNH bonds in Hong Kong
OCTOBER 2011Formalization of RMB Foreign Direct investment (“FDI”)
DECEMBER 2011RMB Qualified Foreign Institutional Investor (“RQFII”) launched
2011 2012
SEPTEMBER 2011Private sector-led development of the CNH market in London
DECEMBER 2011City of London initiative on London as a centre for CNH business established
JANUARY 2012UK Chancellor and Chief Executive of HKMA co-operation on development of offshore RMB business
APRIL 2012HSBC Bank Plc issued the first London executed CNH bond issue
JULY 2012 China MOF sovereign CNH bond issue in July
SEPTEMBER 2012Axiata priced the world’s first rated RMB denominated Sukuk issue
5
Offshore RMB Trade and Deposit Volume Growth in Hong Kong
RMB Trade Settlement figure is for trade settled in Hong Kong Source: HKMA
0
100
200
300
400
500
600
700Ja
n-10
Feb-
10M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0Se
p-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep-
11O
ct-1
1N
ov-1
1D
ec-1
1Ja
n-12
Feb-
12M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2
RMB Market Deposits
RMB Trade Settlement Volume (Monthly)
Offshore RMB Deposits (2010 – 2012YTD)CNH Billion
6
Offshore RMB Issuance
Offshore RMB Issuance (Cumulative)
Source: Dealogic
CNH Billion
7
RMB in the World
London
UK and China officials support London to develop as the western RMB hub
UK Chancellor and HKMA support private-sector led HK-London Forum
Extension of Hong Kong’s RMB RTGS system to facilitate RMB payments during European time zone through the Hong Kong infrastructure
Japan
Dec-11 – The leaders of China and Japan agreed to enhance financial cooperation
Mar-12 – Bank of Japan received approval to purchase RMB65bn in Chinese Government Bonds
Jun-12 – Direct trading between RMB and JPY was launched in the China Foreign Exchange Trade System (CFETS)
Dubai International Financial Centre (DIFC)
Expected to permit transactions in RMB this year
Allow companies to use RMB instead of USD or EUR for non-oil trade
UAE’s oil exports to China is expected to continue to be settled in USD
Countries / regions with currency swap agreements with China:
Asia: Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Malaysia, South Korea, Mongolia, Pakistan UAE, Uzbekistan, Kazakhstan
Australasia: Australia, New Zealand
Europe: Russia, Iceland, Ukraine, Belarus, Turkey
South America: Argentina
Source: HKMA, PBoC, Reuters
BRICS
Mar-12 – China Development Bank (“CDB”) signed two pacts/agreements with the other BRICS nations’ development bank during the Annual BRICS Summits in New Delhi
CDB will extend RMB loans to other BRICS nations
Aims to boost trade between the five nations and reduce demand for fully convertible currencies for transactions among BRICS nations
Taiwan
July-11 – Offshore banking units (OBU) allowed to conduct RMB business
Opening up of RMB business to designated banking units (DBU)
Australia
Jul-12 – Launch of RMB Trade and Investment Dialogue between Hong Kong and Australia
8
International Issuers in the CNH Markets
February 2012
Lotte Shopping
RM750m 4.000% due 2015
February 2012
Mitsui & Co., Ltd.
RMB500m 4.250% due 2017
March 2012
Alstom
RMB500m 4.250% due 2015
March 2012
Emirates NBD
RMB750m 4.875%RMB250m Reopeningdue 2015
March 2012
Ford Motor Company
RMB1bn 4.875% due 2015
March 2012
Hitachi Capital Corporation
RMB500m 3.750% due 2015
July 2012
Sumitomo Mitsui Finance & Leasing Company
RMB600m 4.000% due 2015
August 2012
Societe Generale
RMB500m 4.150% due 2014
August 2012
ABN AMRO Bank N.V.
RMB500m 3.500% due 2014
July 2012
Kreditanstalt für Wiederaufbau
RMB500m Reopening due 2014
July 2012
Export and Import Bank of Korea
RMB1.75bn 3.250% due 2015
June 2012
Korea Development Bank
RMB1bn 3.300% due 2015
March 2012
Raiffeisen Bank International
RMB750m 4.550% due 2014
May 2012
Landeskreditbank Baden-Württemberg
RMB250m 2.250% due 2014
June & May 2012
Swedish Export Credit
RMB500m 2.375%RMB150m Reopening due 2015
March 2012
ICICI Bank
RMB210m 4.625% due 2015
February 2012
America Movil
RMB1bn 3.500% due 2015
November 2011
IDBI Bank Limited
RMB650m 4.500% due 2014
November 2011
Lafarge Shui On Cement
RMB1.5bn 9.000% due 2014
April 2012
HSBC Bank Plc
RMB2bn 2.875% due 2015
May 2012
Kreditanstalt für Wiederaufbau
RMB1bn 2.050% due 2014
Selected MNC Transactions
Japanese Issuer
9
First London Executed CNH DealHSBC Bank plcRMB2 billion 2.875% 3-year Senior Unsecured Benchmark Issue
Summary Terms and Conditions
First issuer to successfully print a London executed deal HSBC Bank Plc announced its inaugural offshore RMB transaction on Wednesday 18 April 2012. This trade broke new ground by being
the first of its type to specifically target distribution to European investors. This objective was successfully met with 60% being allocated into Europe
HSBC intended to admit the bonds for trading on the LSE ORB system
Milestone for the ongoing internationalisation of the RMB The transaction represents HSBC’s continuous effort in RMB globalisation and in promoting London as the 2nd offshore RMB centre The success of the transaction further cements HSBC’s status as the leading global house for ‘International RMB’ issuance
Strategic execution led to strong market response A series of investor calls announced on Monday 16 April 2012 attracted investors focus on the trade, and the transaction was announced
at the opening of the Hong Kong market with initial guidance of 3% – 3.25% for a benchmark size This strategy secured strong demand in Asia and at the opening of the European market, the issuer was able to upsize the minimum print
to RMB2bn while revising guidance to 3% Given the very good response from investors, orderbook was closed in good shape in excess of RMB4.25 billion from over 100 high
quality accounts
New Market of Distribution
Overwhelming Demand
Groundbreaking Milestone for RMB globalisation
Issuer HSBC Bank PlcAmount RMB2bnFormat Senior UnsecuredIssuer ratings Aa3 / A+ / AA (Moody’s/S&P/Fitch)Issue ratings Aa2 / AA- / AA (Moody’s/S&P/Fitch)Pricing date 18 April 2012
Settlement Date 30 April 2012Maturity 30 April 2015Coupon 2.875% p.aRe-offer Yield 3.000%Re-offer Price 99.644%Listing London Stock Exchange
HSBC Bank Plc.
RMB2bn 2.875%3-year senior unsecured transaction
10
América MóvilRMB1bn 3.500%
3-year senior unsecured transaction
First-ever SEC-registered CNH dealAmérica Móvil (AMX) RMB1 billion 3.500% 3-year Senior Unsecured Notes
Summary Terms and Conditions
Paves the way for more issuance from Latin America This landmark transaction effectively opened an entirely new market for Latin American issuers, reflecting HSBC’s strong commitment to our
clients to explore the best financing alternatives in traditional as well as unconventional markets globally First offshore RMB corporate issuance in 2012, successfully reopening the corporate Dim Sum bond market which had been inactive since late
November in 2011 (excluding issuances from Government-owned Chinese Agencies)
SEC registered CNH Deal America Movil’s inaugural Dim Sum bond also represents the First-ever SEC-registered CNH deal
Well planned execution Although the transaction was fully subscribed by Asia’s close of business, syndicates left books open for 2 hours during New York's open,
allowing additional demand from the US accounts
Extremely well-received with an approximate orderbook of RMB2 billion AMX's landmark transaction was launched at the Hong Kong’s open on February 1, with large orders by real-money accounts coming in
quickly, especially those who had met with the issuer in its Asian roadshow in December and were expecting the transaction With final books totaling nearly RMB2 billion with participation from over 60 accounts, AMX was able to issue RMB1 billion at 3.500%, the
tighter end of initial price guidance (3.500% - 3.600%)
Market Opening Transaction
Strategic Execution
Issuer América Móvil S.A.B. de C.V.Amount RMB1bnFormat SEC RegisteredRanking Senior UnsecuredIssuer ratings A2 / A- / A (Moody’s/S&P/Fitch)
Pricing date 1 February 2012Maturity 8 February 2015Coupon 3.500% p.aListing Luxembourg Stock Exchange
Innovative Format
Strong Market Demand
11
Axiata Group BerhadRMB1bn 3.750%
2-year Islamic senior unsecured transaction
First-ever Rated Islamic CNH dealAxiata Group Berhad (Axiata) RMB1 billion 3.750% 2-year Islamic Senior Unsecured Notes (“Sukuk”)
Summary Terms and Conditions
Paves the way for more Islamic issuers in CHN market This landmark transaction represents the World’s First Rated RMB denominated Sukuk issue, effectively opening an entirely new market for
CNH issuers, reflecting HSBC’s strong commitment to our clients to explore the best financing alternatives and bringing diversified issuers to the RMB market
This transaction also marks the World’s Largest RMB Sukuk Offering to date
First RMB Sukuk in the world that utilises 100% airtime vouchers as an underlying asset Axiata’s inaugural Dim Sum bond represents the World’s First RMB denominated Sukuk that utilises 100% Airtime Vouchers as an
underlying asset, reaffirming HSBC’s role at the forefront in leading innovation in Islamic finance
Extremely well-received with an approximate orderbook of RMB3.5 billion Axiata’s landmark transaction was launched on 11 September 2012 and attracted very strong investor demand, enabling the transaction to be
upsized from an initial proposed RMB500 million while revising price guidance to 3.75% - 3.85% from the initial 4.00% area With a final book of over RMB3.5 billion orders, about seven times of the initial proposed size with participation from over 80 accounts, Axiata
was able to issue RMB1 billion at 3.750%, the tightest end of final price guidance The transaction had a strong distribution across wide investor base among Funds (62%), Banks (22%), Private Banks(14%) and Corporate
( 2%). Hong Kong investors were allocated 55%, Singapore investors 28%, Malaysian investors 13% and the rest went to European and other investors
GroundbreakingTransaction
Issuer Axiata SPV2 BerhadObligor Axiata Group BerhadAmount RMB1bnFormat Regulation SRanking Senior UnsecuredIssuer ratings Baa2 / BBB (Moody’s/S&P)Issue ratings Baa2 / BBB- (Moody’s/S&P)
Pricing date 11 September 2012Settlement date 18 September 2012Maturity 18 September 2014Coupon 3.750% p.aListing Singapore Exchange and
Bursa Malaysia
Innovative Format
Strong Market Demand
12
Notes: (1) HSBC in-house estimates
2010-2011 2013-2015 2015 onwards
After USD and Euro, RMB is expected to replace GBP as the 3rd most popular currency for trade settlement globally
More than USD 2 trillion or one half of China’s total trade flows with emerging markets expected to be settled in RMB by 2013 to 2015 (1)
Further financial reform to strengthen domestic financial infrastructure
Paving the way for full RMB convertibility
RMB Market Potential
Section 2: Asian Bond Market Development
14
Outlook for Asia and Emerging Markets Remains Constructive
Fund flow into the emerging market has seen strong
growth in the 1H 2012 and should remain stable
through to the 2H 2012
This has resulted in over 173 USD transactions totaling
approximately USD94.1bn in funds
Strong investor demand has seen a strong rebound in
Asia ex-Japan G3 Bonds in the 1H 2012 and looks to
continue till year end. The Asia ex-Japan IG index has tightened from over 250bps
in 2011 to the current 110bps to 130bps level
Source: Bloomberg, 20 September 2012
Global Credit Indices (bps)
50 bps
100 bps
150 bps
200 bps
250 bps
300 bps
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-1250 bps
100 bps
150 bps
200 bps
250 bps
300 bps
iTraxx Asia ex-JP IG iTraxx Europe Index CDX North America IG
15
Asian USD Bond Issuance at Record Levels
Entering into 2012, Asian USD primary markets had a strong start as issuers were enticed
by the availability of execution windows against a stable
market backdrop and pent up investor demands following a
lack of primary activities in the 2H 2011
2012YTD, 173 USD transactions were priced
totaling USD94.1bn
Asian USD Monthly Issuance (Cumulative)USD m
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec
2012 2011 2010 2009Source: Bloomberg, 20 September 2012
16
Corporate (60%)
Financial Institutions (30%)
Sovereign (10%)
AAA (2%)
AA (9%)
A (36%)
BBB (27%)
BB (11%)
B (4%)
NR (11%)
G3 Issuance Analysis (2012YTD)
China (17%)
Hong Kong (19%)
India (6%)
Indonesia (9%)
Korea (19%)
Malaysia (6%)
Mongolia (1%)
Philippines (8%)
Singapore (10%)
Sri Lanka (1%)
Thailand (3%)
Vietnam (1%)
Breakdown By Tenor Breakdown By Ratings
Breakdown By Countries Breakdown by Issuer Types
<5 years (3%)
5 years (40%)
5 to 7 years (12%)
10 years (33%)
> 10 years (12%)
Source: HSBC, Bloomberg, 20 September 2012
17
0
50
100
150
200
250
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
G3
Asia-ex Japan Issuance Volume 1999 – 2012YTD
Rising Prominence of the Asian Debt Markets
USD bn• Source of funding largely
characterized by bank / relationship lending
• Scant in terms of variety of issuers, product type and depth
• Burgeoning bond market
• Wider breadth of products
• Savvier issuers and investors alike
• New markets
0
50
100
150
200
250
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Local Currency CNHSource: Bloomberg, 20 September 2012
18
Greater Diversification of Asian Borrowers
Asia-ex Japan G3 Bond Distribution of Issuance by Countries
0%
20%
40%
60%
80%
100%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Vietnam
Taiwan
Sri Lanka
Pakistan
Mongolia
Macao
Thailand
Malaysia
Singapore
India
Philippines
Indonesia
China
Hong Kong
South Korea
Source: Dealogic, 20 September 2012
19
Asian Bond Market Outlook
Themes• Increasing importance of the Asian local currency bond market – tremendous growth in recent years, particularly CNH
• Increasing participation by Private Bank Investors – active in Asian G3 and local currency primary markets, providing early momentum especially for those unrated or debut issuers
• Increasing sophistication in product development – e. g. High Yield, Hybrid Capital, Sukuk, Inflation-linked bonds
•Dramatic involvement of middle market borrowers – especially after Basel III
20
DisclaimerThe Debt Capital Markets division of The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) has prepared this document (the “Document”) for information purposes only. This Document does not constitute a commitment to underwrite or purchase or subscribe for all or any portion of the securities mentioned herein. Any such commitment shall be evidenced only by a fully executed subscription agreement, purchase agreement or similar contractual document. This Document should also not be construed as an offer for sale of or subscription for any investment, nor is it calculated to invite/solicit any offer to purchase or subscribe for any investment.
HSBC has based this Document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability for the contents of this Document and/or as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Document. HSBC and its affiliates and/or its or their respective officers, directors and employees may have positions in any securities mentioned in this Document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and/or any of its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this Document (or in related investments), may sell them to or buy them from clients on a principal or discretionary basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. As HSBC is part of a large global financial services organisation, it or one or more of its affiliates may have certain other relationships with the parties relevant to the proposed activities as set out in this Document, and these proposed activities may give rise to a conflict of interest, which the addressee hereby acknowledges.
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The Hongkong and Shanghai Banking Corporation Limited
The Hongkong and Shanghai Banking Corporation LimitedHSBC Main Building, 1 Queens Road Central, Hong Kong
© Copyright. The Hongkong and Shanghai Banking Corporation Limited 2012, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited (February 2012).