Dim sum debut: UK completes first renminbi bond sale in push to build foreign currency reserves

 
Tim Wallace
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David Cameron has been cultivating close ties with Beijing, meeting premier Li Keqiang to announce a series of trade deals this summer
City dealmakers scored an unexpectedly big success yesterday, selling a 3bn renminbi (£300m) bond for the government.

The sale gives the square mile a welcome boost after the turmoil of the past month after the Scot­tish referendum, wobbles in the flotation market and uncertainty over oil prices.

It is the first time a western state has issued bonds in the Chinese currency, and helps to open up a new industry for London as the main off-shore centre for the renminbi.

Investors from across the world bought into the so-called dim sum bond, with the order book coming in at 5.8bn renminbi.

The strong demand pushed the rate on the three-year money down to 2.7 per cent. This is a lower price than the 2.9 per cent expected.

However, it is well above the borrowing costs in sterling – the government currently pays around 1.4 per cent to borrow for five years and 2.1 per cent for 10 years. The Treasury hopes that will fall as the off-shore renminbi market becomes bigger and more mature.

The bond raised more money than planned, with demand allowing the government to raise the fundraising from 2bn renminbi to 3bn renminbi.

The deal represents a sub­stantial boost for Standard Chart­ered. Profits have taken a tumble at the British bank after a decade-long streak of record earnings abruptly came to an end last year. HSBC and the Bank of China also ran the book on the deal.

The funds will be used to build foreign currency reserves, in an indication of the growing importance of the renminbi. Before yesterday the res­erves were made up only of US dollars, euros, yen and Canadian dollars.

“We need to export to fast growing economies such as China, and attract more investment to our shores,” said chancellor George Osborne. “To do that, we need to make sure China’s currency is used and traded here, as that will be not only good for China, but good for British jobs and investment, too.”

Most orders came from Asia but 36 per cent came from Europe, the Middle East and Africa and eight per cent from the US. By institution, 17 per cent of orders came from the official sector, 64 per cent from banks and 19 per cent from fund managers.

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