China may allow commercial banks to enter Futures Trading Market. Hong Kong plays a key role in facilitating One Belt One Road initiative

Transcription

1 RMB Focus JUNE 2016 I. China further details CIBM access for offshore investors Cross-border RMB Bond Scheme is launched in Shanghai FTZ Pilot Offshore Financing Scheme expands nationwide II. More investment products are allowed to trade in CIBM China may allow commercial banks to enter Futures Trading Market CFETS launches RMB C-Forward Hong Kong plays a key role in facilitating One Belt One Road initiative PBoC signs bilateral currency swap with Morocco Clearing for RMB CDs in New York starts China Ministry of Finance issues government bond in London CLS works on RMB inclusion Investors see possible A-Share inclusion into MSCI in June RMB Competence Centre - Page 1

2 I. Further to the PBoC Announcement No. 3 on February 24 th 2016, PBoC and SAFE on May 27 th gave more information on Qualified Offshore Institutional Investors (QOIIs) accessing CIBM. QOIIs include: Financial institutions e.g. banks, insurance companies, security companies, fund management companies, other asset management companies and investment products of these financial institutions. Medium and long term investors e.g. pension funds, charity funds, donation funds. Eligible investment products: QOIIs are allowed to trade cash bond, and hedge with bond lending & borrowing, bond forward, interest rate swap and forward rate agreement. QOIIs can decide the projected investment amount and file with PBoC prior to investing. Funds can be injected and repatriated in either RMB or FCY; FCY can be converted onshore or offshore. The ratio of RMB vs FCY repatriated must be between 90% and 110% of the ratio of RMB vs FCY injected. The above requirement does not apply to 1st time repatriation. The total repatriated amount of RMB and FCY cannot exceed 110% of accumulated injected amount. QOIIs registration is completed, otherwise refiling is required. QOIIs can only open one RMB special account for cash settlement. Financial institutions entering CIBM as QFII/RQFII can conduct investment after filing with PBoC, and should still follow the existing rules under QFII/RQFII scheme in terms of investment quota/ratio and FX conversion. Financial institutions having CIBM access do not need to file again with PBoC. The original quota approved will be automatically recognised as the projected investment amount. Broaden QOIIs definition and remove their direct interbank access quota. Allow eligible investment products for hedging. RMB Competence Centre - Page 2

3 QOIIs can participate in CIBM after registering with PBoC and opening relevant accounts via banks with Type A license whereas previously PBoC approval is required. Encourage QOIIs to conduct medium and long term investment in CIBM. QOIIs are required to maintain similar currency structure in fund injection and repatriation. As bank with Type A license, BNP Paribas (China) Ltd. can provide full agency services and hedging solutions to QOIIs for investments in CIBM. - Shanghai Clearing House (SHCH) on May 9 th launched Cross-border RMB bond scheme in Shanghai onshore/offshore issuers and investors. SHFTZ RMB bond can be issued by onshore/offshore Financial Institutions and Corporates, and invested by Shanghai FTZ incorporated entities and offshore Financial Institutions. Filing with relevant authorities (e.g. PBoC) or registration with self-regulated organisations (e.g. NAFMII) is required for the issuance of SHFTZ RMB bond. Investors can trade SHFTZ RMB bond directly, or via onshore banks with Interbank Bond Settlement Agent (Type A) licence or offshore international custodians in cooperation with SHCH. SHFTZ RMB bond can be also purchased through commercial bank counter, which is only applicable to Shanghai FTZ incorporated banks that have filed with PBoC and achieved network connection with SHCH. SHFTZ RMB bond scheme, which is a milestone for China to further integrate into global financial market, creates a new RMB bond market for both onshore/offshore issuers and investors, and encourages more funds to be placed in China. The connection between SHCH and other international custodians enables offshore investors to open RMB bond settlement accounts at their local Central Securities Depositories without dealing directly with SHCH. BNP Paribas China Ltd. is eligible to issue SHFTZ RMB bond, and can be an underwriter /financial advisor for SHFTZ RMB bonds issued by Financial Institutions as well as financial advisor for those issued by Corporates. It can also provide investors with agency services. With FTU system, BNP Paribas China Ltd. is a qualified investor; BNP Paribas China Ltd. and Shanghai FTZ branch can provide hedging services to issuers and investors. BNP Paribas offshore branches can be SHFTZ RMB bond investors. RMB Competence Centre - Page 3

4 Qualified issuers Onshore and offshore entities that filed with relevant authorities (e.g. PBoC) or registered with self-regulated organisations (e.g. NAFMII) can issue SHFTZ RMB bond publicly or privately to eligible investors. Requirements on SHFTZ RMB bond issuance Before issuing SHFTZ RMB bond, qualified issuers shall get approval from PBoC or relevant authorities, and entrust SHCH to handle issuance registration, information disclosure, interest payment, funds transfer and other related matters. Issuers also need to apply with SHCH to open an account for recording the balance of SHFTZ RMB bond. Eligible investors Onshore Financial Institutions with Free Trade Accounting Unit (FTU) system Shanghai FTZ incorporated entities with Free Trade Account (FTA), including Financial Institutions, products issued by such institutions, private investment funds and Corporates. Offshore incorporated Financial Institutions (and products) with FTA or NRA at onshore banks, such as QFII, RQFII, RMB clearing and participating banks, Foreign Official Institutions. Channels for offshore investors to access SHFTZ RMB bond market Direct participation. Offshore investors should open Dedicated Bond Custody Account and Cash Settlement Account in SHCH and establish internet connections by themselves. Filing the account information with PBoC is required. Via onshore agent banks. Offshore investors can entrust onshore banks with Bond Settlement Agency Licence (Type A) to open Dedicated Bond Custody Account and Cash Settlement Account in SHCH and file with PBoC. Via offshore international custodians. Offshore investors can open Bond Custodian & Settlement Accounts in international custodians in cooperation with SHCH to trade SHFTZ RMB bond. Comparison with Panda and CNH bonds Proceeds of SHFTZ RMB bond can be freely repatriated offshore, whereas transfer of Panda bond proceeds may be controlled as part of temporary restrictions imposed on capital outflows. Compared to CNH bond (e.g. Dim Sum bond), SHFTZ RMB bond issuance and investment are under stricter supervision. RMB Competence Centre - Page 4

5 Panda bond CNH bond (e.g. Dim Sum bond) SHFTZ RMB bond Issuing process File with relevant authorities (e.g. PBoC) or register with self-regulated organisations (e.g. NAFMII) Apply to offshore bond issuance procedures Similar to Panda bond Exchange rate for funds conversion Onshore CNY or offshore CNH Offshore CNH Shanghai FTZ or offshore CNH Proceeds transfer May be controlled as part of temporary restrictions imposed on capital outflows No restriction No control of offshore repatriation Market access for offshore investors Can trade via onshore banks with Interbank Bond Settlement Agent (Type A) licence Can trade directly Can trade directly, or via onshore banks with Interbank Bond Settlement Agent (Type A) licence or offshore international custodians in cooperation with SHCH Key Regulators PBoC, NAFMII, etc. HKMA, etc. PBoC, NAFMII, etc. On April 29 th 2016, PBoC announced the expansion of pilot offshore financing scheme (PBoC Circular No.18) to entire mainland China, effective May 3 rd. Onshore financial institutions (including BNP Paribas China) and corporates (excluding real estate and local government financing vehicles) can borrow RMB and foreign currency Funds raised by corporates should be used for production and operation activities while funds raised by financial institutions (FIs) can be used to replenish their capital or finance real economy. The drawdown and repayment of offshore financing shall be conducted in the currency mentioned in contract. The new scheme presents additional loan opportunities for Corporate Banking business of offshore BNP Paribas branches. RMB Competence Centre - Page 5

6 Funds raised offshore are allowed to be converted into RMB onshore, giving BNP Paribas China an opportunity to provide hedging services (e.g. CCS) for clients. BNP Paribas China is qualified to raise funds from offshore via the new offshore financing scheme thanks to the expansion. Compared to the current foreign debt policy, the new scheme presents both pros and cons to the bank. The bank should review and choose whether to adopt the current foreign debt framework or the new scheme. Once decided, it cannot be changed unless a special PBOC Pros: deposits of offshore financial institutions and borrowings from offshore associated banks and affiliates shall not be subject to quota control, giving the bank unlimited offshore borrowing capacity through absorbing offshore interbank deposit. Cons: fair values of off-balance sheet liabilities (contingent liabilities) including cross border guarantee, derivative transactions are newly embraced into quota control. 1) Calculation on offshore financing quota Total amount of offshore financing* CANNOT EXCEED offshore financing quota. Offshore financing quota** = capital or net asset offshore financing leverage ratio macro prudential coefficient (see the table below). Non-financial Corporates Banks Non-banking FIs Capital or net asset (audited financial statement) Net asset Tier 1 capital Paid-in capital or equity + capital reserve Offshore financing leverage ratio Macro prudential coefficient (can be changed by PBoC) * Both offshore financing quota and total amount of offshore financing are denominated in RMB. FX rate for FCY offshore financing is based on following rate on withdrawal day: if the currency is listed in CFETS, apply to CNY Central Parity Rate or RMB/FX Regional Trading Reference Rate; if the currency is not listed in CFETS, apply to CNY Reference Rate released by CFETS. ** In principle, the quota shall be calculated once a year based on the financial statement of the past year. RMB Competence Centre - Page 6

7 2) Calculation on the total amount of offshore financing Total amount of offshore financing = the outstanding balance of CNY & FCY offshore financing tenor risk conversion factor business risk conversion factor + the outstanding balance of FCY offshore financing Currency risk conversion factor Risk conversion factors Conditions Value Tenor risk conversion factor Short- 1.5 Medium/long-term (>1 year) 1 Currency risk conversion factor Business risk conversion factor* Foreign currencies 0.5 On-balance sheet financing 1 Off-balance sheet financing and other contingent liabilities * For trade finance transactions in foreign currency, tenor risk conversion factor is 1 and business risk conversion factor is ) Items exempted from consuming offshore financing quota 1 1 Onshore bonds issued by corporates and FIs and invested by offshore institutions 2 Panda bonds issued by the offshore parent company of nonfinancial corporates and used by its onshore subsidiary 3 Debt of corporates and FIs that has been converted into capital or been forfeited 4 Deposits in FIs from offshore entities 5 Interbank deposits in FIs and transferred from correspondent banks and affiliates 6 Cash pooling conducted by non-financial corporates 7 Trade related accounts payable and advance receipts of nonfinancial corporates 8 Trade finance conducted by corporates and FIs RMB Competence Centre - Page 7

8 Options Offshore Financing Quota Qualified Entities Currency Related Regulations Option 1 FIEs in PRC RMB + foreign currency Case by case basis Domestic entities PBoC Announcement No.23 (2011) PBoC Circular No.165 (2012) SAFE Circular No. 19 (2013) Option 2 Paid-in capital Corporates registered in the SFTZ RMB only PBoC Shanghai Circular No.22, (2014) Option 3 Paid-in capital and capital reserve Corporates and FIs with FTAs RMB + foreign currency PBoC Shanghai Circular No.8 (2015) Option 4 Tier 1 capital or net asset Corporates and FIs nationwide RMB + foreign currency PBoC Circular April 29 th 2016 RMB Competence Centre - Page 8

9 II. PBoC released Announcement No. 8 on May 6 th, allowing qualified onshore financial institutions and other forms of investment products to directly trade in China Interbank Bond Market after filing with PBoC and connecting to the system. 1. Qualified financial institutions refer to commercial banks, trust companies, finance companies of enterprise group, securities companies, fund management companies, futures companies, insurance companies and others permitted by PBoC. 2. Qualified investment projects or products are defined as those launched by financial institutions such as securities investment funds, wealth management products, trust plans, Insurance products, private equity investment funds filling with Asset management association of China, housing provident funds, social security funds, enterprise annuities, pension funds and charity funds. Source: PBoC, BNP Paribas China is considering enlarging investor base for domestic futures trading market. In addition to current investors such as corporates, individuals and asset managers, commercial banks could be permitted to trade futures contracts such as energy and agriculture products. The expansion of participatio is not yet known whether foreign banks will be involved in this push., but it Source: Xinhua - China Foreign Exchange Trade System (CFETS), a sub-institution of the PBOC, launched standardised RMB forward contracts (C-forward) in the interbank foreign exchange market on May 3 rd. During the first trading day, 25 institutions provided quotations on 9 types of C-forwards; 21 institutions reached 62 C-forward deals. Source: CFETS On May 18 th, Hong Kong Financial Secretary, Mr. John C Tsang, delivered a speech at the Belt and Road Summit, where he stressed the importance of Hong Kong in delivering and realising the enormous potential of One Belt One Road initiative despite global headwinds and challenges. RMB Competence Centre - Page 9

10 RMB liquidity in Hong Kong amounts to RMB 900 billion, far exceeding other offshore RMB centres. CNH bond market is the largest of its kind outside Mainland China with dim sum bonds consistently attracting an extensive range of issuers. Besides, Hong Kong has been pushing forward the development of Islamic Finance with two bonds settled already and third Sukuk to be issued soon. The establishment of Infrastructure Financing Facilitation Office will also provide a centralised platform for investors to share information and experience. With international business environment, robust market structure, requisite experience and expertise in fundraising, project financing and asset-management, Hong Kong still plays a dominant role to connect China with the rest of world along the Belt and Road. Source: HKSAR On May 11 th, PBoC and the Bank Al-Maghrib signed a 3-year bilateral currency swap agreement for exchange of up to RMB 10 billion (equivalent to MAD 15 billion), enabling both central banks to provide foreign currency liquidity to stabilise financial markets. This agreement will facilitate bilateral trade and investment between two countries and further strengthen financial cooperation in the region. Source: PBoC, BNP Paribas On May 20 th, ICBC New York Branch issued the first RMB-denominated certificate of deposit (CD), which will be settled in US. The fixed rate CD is valued at RMB 500 million with a 31-day maturity and is the first RMB-denominated financial product to be directly settled through The Depository Trust Company instead of Euroclear. This launch serves as a milestone in the development of offshore RMB market in U.S., further facili and strengthening the financial cooperation between two countries. Source: PR Newswire The Ministry of Finance of China issued its first 3 billion (equivalent to USD 458 million) RMBdenominated government bonds in London Stock Exchange on May 26 th, with an interest rate of 3.28% and maturing in June Investors placed RMB 8.5 billion of orders for the bonds, according to a person familiar with the deal, with 58% of the securities going to investors from Europe, the Middle East and Africa, and the remainder heading to Asian accounts. The past year has witnessed closer cooperation between China and Britain to promote the global use of RMB. UK was the first Western country to issue yuan-denominated sovereign bond and the first major developed country to include the yuan into its foreign exchange reserves. PBoC issued RMB Competence Centre - Page 10

11 5 billion yuan of RMB-denominated notes in London last year, the first offshore issuance of such debts outside China. Source: Xinhua The inclusion of RMB into the global settlement system CLS becomes a major issue among banks as a better settlement FX infrastructure is needed for the FX market with USD 5 trillion trading volume a day. Although CLS and Chinese authorities are making efforts on the issue, the final decision may still take some time. CIPS and CNAPS are effective now but may not be able to handle the ballooning RMB trading volume in the future. To further develop bond and other capital markets onshore, FX market infrastructure is essential to be improved for hedging and other operations. Source: Reuters - CSRC said on May 7 th that mainland share account system supports the recognition of rights and interest of beneficial owners of securities, paving the way for A-share to be included into MSCI Emerging Market Index, which is tracked by about USD 1.5 trillion of assets worldwide. According to statistics, should A-shares account for 5% in MSCI index, it could represent RMB 90 billion capital inflow to China. Source: Bloomberg RMB Competence Centre - Page 11

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