The Ministry of Finance said on June 27 that it would open bids for its planned 5 billion yuan ($760 million) yuan-denominated treasury bond issue in Hong Kong on July 5.
The bond issue will have three tranches and will be the first of two such issues planned by the ministry this year. The second round will also be worth 5 billion yuan and be issued in Hong Kong, the ministry said, without giving a specific timetable.
In the current issue, the first tranche will be a bond issue worth 3 billion yuan with a two-year maturity. It will be followed by an issue for 1.5 billion yuan with five-year maturity, and the remaining 500 million yuan will be a placement for central banks with an option to choose from either of the two maturities, the ministry said.
The interest rates for each series of bonds will be determined in accordance with a competitive tender as described in the Tender Information Memorandum dated June 27, said the document.
The bidding results will be published by the Hong Kong Monetary Authority later, it said.
Meanwhile, the Bank of Communications Co Ltd Hong Kong branch was named the fiscal agent, and issuing and lodging agent, on behalf of the Ministry of Finance.
The funds raised will be used mainly for infrastructure construction, public services, energy conservation, emission reduction projects and corporate innovation, it said.
Taking into account the total 10 billion yuan offering, the country’s gross issuance of yuan-denominated treasury bond in offshore markets will fall this year from 14 billion yuan in 2017 and 31 billion yuan in 2016, as the market termed it “a lighter-than-expected supply” this time.
But it may also not be the perfect timing for dim sum bond issuances, with some experts indicating that the recent weakening of the Chinese currency may deter investors, who are reluctant to take on risks amid market uncertainties and escalating Sino-US trade tensions.
On June 27, the spot exchange rate of offshore yuan softened for the tenth consecutive trading day to 6.6164 per US dollar, the lowest level since Dec 20, after it lost nearly 3 percent in the last two weeks.
“We shouldn’t discount the fact that there has been a broad-based US dollar rally across the foreign exchange markets over the second quarter, at the same time that trade war concerns have intensified,” said Jameel Ahmad, global head of currency strategy and market research at FXTM.
As the first offering of 5 billion yuan is a relatively small batch, the ministry feels no pressure on market demand at the moment, and the influences from a weaker yuan could be limited, according to an official close to the matter.
“We expect the auction to be very well received, on light supply of high-quality dim sum bonds so far this year and likely accommodative offshore yuan liquidity conditions,” according to a research note of Standard Chartered Bank (HK) Ltd.
“Any measure to further improve the liquidity of offshore treasury bonds will likely boost demand and restore some market confidence on the finance ministry’s commitment in the development of the dim sum market,” said the bank.