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Georgina Lee

The Hong Kong government is seeking to revive investor interest in offshore yuan bonds issued in the city by emphasising their role in helping to finance ventures related to the green economy and environmental sustainability.
The pivot comes amid dwindling interest in dim sum bonds over the past four years, where issuance in the yuan-denominated debt totalled 56.2 billion yuan (US$8.74 billion) in 2017, down from its peak of 288.5 billion yuan in 2014.
Dim sum bonds had once thrived on the pool of offshore yuan deposits sitting in Hong Kong’s banking system, and the city’s role in facilitating China’s efforts to internationalising the Chinese currency.
The 80.5 per cent decline over the last three years coincides with cheaper funding costs in China’s onshore bond market, as well as competing market access avenues that have made it easier for foreign investors to gain direct access into the 52.3 trillion yuan onshore interbank bond market.




Joseph Chan, Under Secretary for Financial Services and the Treasury, made it clear that Hong Kong’s door is still open for dim sum issuers at a conference last week co-hosted by the Hong Kong Monetary Authority and the International Capital Markets Association.
“Hong Kong processes 76 per cent of the global offshore yuan payments and possesses the biggest offshore yuan liquidity pool. With more than 20 per cent of the green bonds issued by Chinese financial institutions and corporates offshore, [Chinese issuers] could tap into more international money in the future,” Chan said.
How Hong Kong can be the bridge to the world for mainland China’s green bond market
Earlier this year, the government introduced a HK$800,000 per issue subsidy for issuers that use its third-party verification “green finance certification scheme” run by the government-owned Hong Kong Quality Assurance Agency (HKQAA).
Bank of America Merrill Lynch forecasts that by 2020 green bond issuance from China will rise to US$55 billion per annum from US$37.1 billion in 2017.

Using BofAML’s US$55 billion forecast, and assuming Hong Kong is able to take half of the offshore issuance, and further assuming that this 10 per cent of offshore green bonds are to be raised in offshore yuan, that would imply a green dim sum bond market worth US$5.5 billion.
Putting it in the context of the offshore yuan deposits in Hong Kong, which totalled 597.6 billion yuan (US$93.45 billion) in April, that sits at just 6 per cent of the total yuan pool.
And there are early signs that Chinese banks have made exploratory steps to the city’s green bond market. Last week, the Industrial and Commercial Bank of China (ICBC) launched its first Hong Kong dollar green bond through its Hong Kong entity ICBC (Asia), a HK$2.6 billion (US$331.25 million) issue that was completed alongside another two concurrent tranches totalling a combined US$400 million.
HK$100 billion green bond plan to establish Hong Kong as global hub, says monetary authority
Tang Ling Yun, ICBC’s deputy general manager of global market department based in Beijing, said the Hong Kong issuance has successfully been certified by HKQAA’s “green finance certification scheme”.
Tang urged the government to further support the development of green bond issuance in Hong Kong, calling upon regulators to consider incentives in the form of tax breaks and interest subsidies.
Tang, who was sitting next to Chan during last week’s panel discussion, said the proceeds raised will be for low-carbon, renewable, green transport related to China’s Belt and Road Initiative.




Wang Yan, treasurer and deputy general manager of Bank of China London branch, said the choice of which foreign currency that an issuer would choose to raise via a green bond hinges on a combination of the currency of the actual funding requirements and relative funding costs.
“The diversification of investor base is also one important factor that could affect our decision on the issuing currency,” she said.
In May, BOC Hong Kong successfully priced a HK$3 billion two-year fixed rate sustainable bond issue, reflecting the first sustainable bond issued in Asia. It was launched in parallel with a separate US$1 billion three-year, five-year green floating rate bond issued by its London branch.
Apart from eligible green projects, BOC will also use proceeds raised from the sustainable bond to fund social projects such as affordable housing, affordable basic infrastructure such as clean drinking water and sanitation.


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Annual issuance of offshore yuan bonds in Hong Kong have declined by 80.5 per cent from 2014 to 2017. Photo: AP

A U.S. dollar note (L) and a Chinese yuan banknote are seen through a pair of spectacles in this picture illustration taken in Taipei in this October 13, 2010 file photo. The nascent market for "dim sum" bonds - denominated in Chinese yuan but issued outside the mainland - is poised for strong growth this year, gaining traction even as China opens its own markets to lure investors' money directly inside its borders. To match CHINA BONDS/DIMSUM REUTERS/Nicky Loh (TAIWAN - Tags: BUSINESS)

Hong Kong’s dim sum bond market seen bottoming out amid rising yields, strengthening yuan

Activity in the dim sum bond market could increase if internationalisation of the yuan accelerates. Photo: Reuters