Titre de la presentation Europlace Shanghai 2010 Investment Opportunities: RMB Bonds Asian Local Currency Markets in Context Note: Local currency does not include government issuance Source: Dealogic, as of 15 Nov 10 2
Overview of Asian LCY Corporate Bond Markets LCY Corporate Bond Outstanding as of 30 Jun 2010* Source: ADB, Taiwan Central Bank, Dealogic, Bloomberg * Corporate Bonds include issues by Financial Institutions * Corporate Bonds include: CP, Short Term and Long term bonds, Asset Backed Securities * India issuance data as of Q3 2010 3 Overview of Asian LCY Corporate Bond Markets LCY Corporate Bond Markets Growth Rates Y-on-Y as of 30 Jun 2010* Source: ADB, Taiwan Central Bank, Dealogic, Bloomberg * Corporate Bonds include issues by Financial Institutions * Corporate Bonds include: CP, Short Term and Long term bonds, Asset Backed Securities * India issuance data as of Q3 2010 4
Overview of Asian LCY Corporate Bond Markets LCY Corporate Bond Markets as % of GDP as of 30 Jun 2010* Source: ADB, Taiwan Central Bank, BIS, Bloomberg, Dealogic, EuroStat, U.S. Bureau of Economic Analysis * Corporate Bonds include issues by Financial Institutions * Corporate Bonds include: CP, Short Term and Long term bonds, Asset Backed Securities * India / EUR / US bond issuance data as of Q3 2010 5 2009-2010 YTD Local Currency New Issue Volumes China the most significant market by a considerable margin Note: Local currency does not include government issuance Source: Dealogic, as of 15 Nov 10 6
China Primary Market: Top Down Major Types of Bonds in China Domestic Markets* CP MTN Financial Bonds Corporate Bonds Issue Tenor 1y 3-7y 3-7y 1-15y Approval Agency PBOC (NAFMII) PBOC (NAFMII) PBOC (NAFMII) Issuer Corporates > AA+ Commercial Banks NDRC or CSRC State-owned Enterprises & Listed Companies Issue Market Interbank Interbank Interbank Interbank & Exchange Issue Volume 2010 YTD (in billion CNY) Underwriter 585 452 86 307 Commercial Bank Commercial Bank Commercial Bank Securities Source: Chinabond * Excluding bonds issued by government, central bank and policy banks 7 Spotlight on RMB Markets MTN market currently seeing the strongest growth Source: Chinabond 8
Investors and Their Major Bond Holdings* Most investors are largely Buy and Hold investors; Large part of the bonds sourced in Primary Market Source: Chinabond * Major Bond Holdings include investor holding on: Treasury, Policy Bank Banks, Corporate Bonds and CP 9 Investors and Their Major Bond Holdings Commercial banks are the major investors of RMB bond Total Major Bond Holdings Treasury Holdings Policy Bank Bond Holdings Corporate Bond Holdings* CP Holdings Source: Chinabond * Corporate Bonds include: State-owned Corporate bonds and Local Corporate Bonds 10
Secondary Market Volume Interbank Market Spot and Repo Trading Volume Secondary market for credit bonds relatively limited with low turnover Source: Chinabond 11 Secondary Market Volume Trading Volume By Bond Type (2010 YTD) Yearly Trading Volume Trading Volume By Investor Type (2010 YTD) 22 Market Makers in Interbank Market Source: Chinabond, PBOC 12
CNH: RMB in Hong Kong Pool of CNH deposits in HK has reached CNY149bn as of September, and is expected to grow significantly HK CNY Deposits: Outstanding and as % of Total Deposits Sources: BNP Paribas and CEIC 13 Milestones & New Issues in the CNH Debt Capital Markets CNH market It is the offshore CNY Deliverable Forward market domiciled in Hong Kong First CNY-denominated bond issued by a State owned Red Chip in HK First CNY-denominated bond issued by a Foreign Corporate in HK 11 February 2010 HKMA announced it allowed companies to issue CNY-denominated bonds in HK First CNY-denominated bond issued by a Foreign Bank (PRC Branch) in HK First CNY-denominated bond issued by a PRC Bank in HK 8 June 2007 PBOC announced that mainland Financial Institutions can issue CNY-denominated financial bonds in HK Total: CNY56.38bn / US$8.16bn Sources: BNP Paribas 14
The Birth of a New Market: CNH Bond Market CNH market It is the offshore CNY Deliverable Forward market domiciled in Hong Kong Issuer Type Tenor Issuance Volume Redemption YTD Sources: BNP Paribas 15 Issuing in the CNH Market Which issuers? Currently, non-chinese corporates are not able to issue CNY bonds onshore, and thus issuing CNH bonds in HK is an attractive alternative to raise funding in RMB There is flexibility with regards to issuing entity (i.e. whether the entity is foreign or HK-based) Marketing Depends on the Issuer: brand names may not need a roadshow Target investor base similar to HKD bonds, including some offshore funds Execution Process & Timetable Documentation: can be off EMTN Programme or standalone EMTN Programme needs to have CNH specific requirements (i.e. CMU as additional depository and additional selling restrictions) Size of Market Expect initial issue sizes to be similar to HKD transactions Will start at around the equivalent of USD 25-50mm first and grow depending on the quality of the issuer and credit appetite Benchmark government and agency issuers are around equivalent of USD 100-300mm Pricing & Maturity (Normally) Fixed rate basis Markets that are most liquid -- maturities of 3 years and below Use of Proceeds HKMA places no restrictions on proceeds to be remitted to mainland China Hence use of proceeds can be either used offshore or onshore. If onshore, remittance is subject to Chinese Authority approval (still case by case) All RMB bond issuers in overseas markets must apply the pre-registration from both PBOC and SAFE for the remittance of RMB bond income to mainland China. 1 or 2 weeks needed for the procedure in PBOC and less than 4 weeks in SAFE Head Office, or 1 or 2 weeks in the authorized SAFE local branches 16
Distribution of CNH Bonds Key Potential Investors Hong Kong Current Core Investors Agricultural Bank of China, Halbis Asset Management HK Hang Seng Bank Bank of China HSBC Bank of China, Hong Kong HSBC Private Bank BOC Life ICBC Asia Bank of Communications ICBC Macau Bank of East Asia ING Investment Management BNP Paribas Manulife Dah Sing Bank SCB China Construction Bank, SCB Private Bank Asia Shanghai Commercial Bank China Construction Bank, HKSchroders Citibank Citic Ka Wah Chiyu Bank Wing Hang Bank Wing Lung Bank All major private banks First State Investments *This list of investor names is representative only and not exhaustive In terms of investor type, it is mainly Financial Institutions, Corporates Private Banks & Funds Significant growth will come from Global asset managers 17 Investing in the CNH Market RMB Deposit Who can open RMB deposit account in Hong Kong? Personal customers, corporates customers and financial institutions (including securities firms, asset management companies and insurance companies) RMB Products in Hong Kong Who can invest in RMB products in Hong Kong? Any customer with an RMB deposit account maintained with a Participating Bank What RMB products can investors invest? RMB Bonds issued in HK, Certificates of deposit, Structured products, RMB-denominated insurance policies and investment funds Clearance of RMB Products RMB bonds and CDs are usually cleared through CMU Euroclear and Clearstream have each recently announced they are now able to settle transactions and deposit Eurobonds and HK domestic securities denominated in CNY. In theory, it may be possible to settle CNH bonds via the Euroclear system. However, there has been no precedent thus far. Typically, issuers have used the CMU system in HK. If CNH bonds can be settled via Euroclear, there may be increased demand from investors Participating Banks can balance their overseas RMB position through two channels: Bank of China HK and mainland correspondent banks, with whom the Participating Bank has signed a settlement agreement which is filed with the PBOC Sources: HKMA, PBOC, SAFE, CSRC, Chinabond, BNP Paribas 18
Investing in China Domestic Bond Market China Domestic Inter-bank Bond Market Who can invest in China Inter-bank Bond Market? Offshore central banks or monetary authorities RMB clearing banks in Hong Kong and Macau Offshore participating banks engaging in RMB settlement of cross-border trades What fund can be used to invest in the Interbank market? RMB funds derived from currency cooperation between central banks, cross-border trade and investment in RMB business in accordance with relevant regulations How much can investors invest? Investment Quota As approved by PBOC The quota approval will be under the consideration of applicants current position of RMB and the intention of the future requirement How to invest? Offshore participating banks must appoint inter-bank bond market settlement agents which have the capability of conducting international settlement business to trade and settle bonds Offshore central banks and RMB clearing banks could appoint inter-bank bond market settlement agents or apply directly to open a bonds account with China Central Depository & Clearing Co., Ltd China Domestic Exchange Bond Market Who can invest in China Exchange Bond Market? Qualified Foreign Institutional Investors (QFIIs), may include: foreign fund management institutions, insurance companies, securities firms, and asset management companies CSRC is the approval authority for QFII status, and SAFE approves the QFII investment quota. As of September 2010, there are 94 QFIIs with a total of CNY 18.97bn investment quota What can QFIIs invest in China? Treasury bonds, convertible bonds and corporate bonds listed on Shanghai and Shenzhen stock exchanges What s next? mini-qfii pilot scheme Reportedly, the mini-qfii pilot scheme will commence shortly, which will allow Hong Kong subsidiaries of domestic fund management companies and securities companies to utilize offshore RMB funds to invest directly in onshore listed securities, a quota mechanism would also apply to the mini-qfii mechanism Sources: HKMA, PBOC, SAFE, CSRC, Chinabond, BNP Paribas 19 20
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