CCB may tap London market

China Construction Bank Corp (CCB) is considering selling 2.5 billion yuan ($400.25 million) in yuan-denominated bonds in London and may do so as early as this week, a person close to the matter told Dow Jones Newswire Friday, a deal which would mark the first time a mainland-based enterprise offered a "dim sum" bond in any overseas market other than Hong Kong.

CCB has already mandated 11 investment firms to manage the placement - including seven foreign banks and four domestic peers - the source went on to say.

Telephone calls and e-mail enquiries sent by the Global Times to CCB regarding the matter were not returned by press time.

Reports of the State-owned lender's intentions to place a yuan-denominated bond in one of Europe's largest financial markets come at a time when demand overseas for yuan investment vehicles is on the rise, experts told the Global Times. Still, some were skeptical about whether other Chinese businesses would follow CCB's lead amid concerns about the rising cost of offering yuan bonds offshore.

Renminbi deposits have built up quickly in London thanks both to increasing trade between Europe and China and an initiative announced by the city in April to promote itself as one of the world's major yuan hubs, She Minhua, a financial analyst from Zhong De Securities, told the Global Times.

Last year, commercial banks in London recorded 109 billion yuan in deposits of the mainland currency from individual savers and interbank depositors, the City of London Corporation reported in September.

London surpassed Singapore to become the world's second-largest offshore yuan hub, next to Hong Kong, in terms of liquidity, according to data released by the Society for Worldwide Interbank Financial Telecommunication on October 22.

London's mounting yuan pool has sparked local investors' interest in dim sum bonds, which remain among the few yuan-denominated investment opportunities available in Europe, although demand still exceeds supply, said She.

To date, only a handful of financial institutions, including HSBC and ANZ, have launched dim sum bonds in London. The city saw its first yuan bond in April, when HSBC offered 2 billion yuan bond.

Yet, Shi Lei, the deputy manager of Ping An Securities' fixed-income department, pointed out that bearish conditions in the global market have kept a lid on activity in the dim sum market and would likely limit offerings over the near-term. "The continued appreciation of the yuan in the international market has pushed up interest rates and thus increased repayment costs for dim sum bond issuers," said Shi.

Dim sum bond sales have fallen 55 percent in the first 10 months compared to the same time last year, according to a report issued by Fitch Ratings on October 31.

"CCB is a State-owned financial institution with a high credit rating and so it can issue bonds at a low yield rate. Few Chinese firms can do the same," remarked Shi.