London wants to be China’s banker

November 30, 2012
November 30, 2012

China Construction Bank, the world’s second largest by market capitalization, became the first Chinese bank to issue a renminbi bond in London as the city angles for its share of the growing business of raising cash for Chinese companies. British bankers have been competing against their counterparts in Singapore, Australia, and Taiwan in hopes of making London a global center of finance tied to the People’s Republic.

It’s no wonder. Investors have been devouring “dim sum” bonds. That’s the market term of art for bonds denominated in China’s currency, known as renminbi, which translates into “the people’s money.” (Dim sum refers to the bite-size Hong Kong style brunch dishes.) Sales of 84 dim sum bonds raised about $14 billion in 2011, rebounding from 2010, when only 17 dim sum deals were done. There are now some ¥400 billion ($636 million) of dim sum bonds outstanding.

Europeans have bought a lot of them. Like investors worldwide, they’ve developed an appetite for emerging market debt, which offers better returns than developed markets. The sluggish economy in the US and the ongoing debt crisis in Europe have kept interest rates—the same as yields for investors—at rock bottom.

British bankers argue that London’s traditional ties to those European investors now interested in emerging market debt make London a sensible place for launching new issues. Speaking to the South China Morning Post, Manfred Schmoelz, head of transaction services origination for RBS in Asia-Pacific, said:

“Europe is a big investor into the Asia region and China,” said Schmoelz, who joined RBS about half a year ago from Deutsche Bank, where he served for more than two decades. “If they can use the London window with the partnership with Hong Kong, I think both cities should have great chance to establish themselves in that market.”

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