The UK government has today successfully issued a sovereign bond in China’s currency, the renminbi (RMB), becoming the first western country to do so and issuing the largest ever non-Chinese RMB bond.
The RMB 3 billion bond, which is equivalent to approximately £300 million, has a maturity of 3 years and delivers on the Chancellor’s announcement at the recent annual UK-China economic summit in London that the government intended to issue an RMB bond.
It is the world’s first non-Chinese issuance of sovereign RMB debt and will be used to finance Britain’s reserves. Currently, Britain only holds reserves in US dollars, euros, yen and Canadian dollars, so today’s issuance signals the RMB’s potential as a future reserve currency.
The bond issuance, which saw strong demand from investors, also further cements Britain’s position as the most important RMB market in the western world, and represents the next step in the government’s long term economic plan to establish Britain as the centre of global finance.
Chancellor George Osborne said:
The UK government’s sovereign renminbi bond issue, the first by a Western country, has been a great success and will deliver value for money to taxpayers.
Our long term economic plan is working, but the job isn’t done. We need to export to fast growing economies like China, and attract more investment to our shores.
To do that, we need to make sure China’s currency is used and traded here, as that will be not only good for China, but good for British jobs and investment too.
That’s why I’m delighted that today we have taken the next big step in making London - already the global centre for finance - a major global centre for trading and investing the Chinese currency too.
Britain’s sovereign RMB bond is a stand-alone issuance, which will contribute liquidity to the small but fast-growing offshore RMB market and attract other market players in both the private and official sectors.
The proceeds will be used to finance the UK’s reserves which are held in the government’s Exchange Equalisation Account, which include financial assets denominated in foreign currencies, gold and International Monetary Fund Special Drawing Rights. In particular, the proceeds are expected to be reinvested in the renminbi offshore market.
The government continues to meet its domestic financing requirements entirely in sterling, consistent with the debt management objective to minimise the costs of meeting the government’s financing needs, subject to risk.
The Bank of England has acted as HM Treasury’s agent in managing the issuance of the renminbi bond.
The bank syndicate for the sale, which was announced on 9 October, included Bank of China, HSBC, Standard Chartered as Joint Lead Managers.
The order book managed by the Joint Lead Managers opened at around 01:30 London time (08:30 Hong Kong time) on 14 October. The order book captured global demand for the offshore RMB bond over 12.5 hours. The book closed at around 14:00 London time (21:00 Hong Kong time) with 85 orders totalling around RMB 5.8 billion.
The coupon, which corresponds to the cost of servicing the bond for the government, was set at 2.70%.
Allocations were made to a broad range of investors including central banks, bank treasuries and fund managers across the world.