1 April 2005
Foreign Financial Institutions to Issue Rmb Bonds
Mainland consumers now have a new investment product to put their money in. On 18 February 2005, the People's Bank of China (PBOC) or central bank, Ministry of Finance (MOF), National Development and Reform Commission, and China Securities Regulatory Commission jointly issued the Provisional Measures for the Administration of Renminbi Bond Issuance by International Development Agencies. Under the new rule, qualified institutions can issue renminbi-denominated bonds in the domestic market.
In tandem with this development, Guo Shuqing, director of the State Administration of Foreign Exchange (SAFE) announced at the national foreign exchange management meeting held in February that international development institutions will start to issue renminbi bonds in the domestic market in 2005. The issuance of renminbi bonds will be a major task for SAFE this year.
The measures stipulate that international development institutions wishing to issue renminbi bonds in China must have an AA upward renminbi bond credit ranking, and have more than US$1 billion in loans and equity investment in mainland projects and enterprises.
The measures also provide that the interest rate of renminbi bonds will be determined by the issuer based on the prevailing yield of state bonds and duly verified by PBOC. The proceeds from bond issuance cannot be converted into foreign exchange for remittance out of the mainland. The funds should primarily be used to provide mid- to long-term fixed asset loans or equity investment for construction projects on the mainland.?/span>
The central bank has indicated that one to two international development agencies will be selected to issue renminbi bonds on a pilot basis. The scheme will be extended pending the result of the pilot. The International Finance Corporation of the World Bank, Asian Development Bank, and the Japan Bank for International Cooperation have reportedly been approved by MOF. The three institutions would begin the issuance of renminbi-denominated bonds totalling Rmb4 billion during the first quarter of 2005. This will mark the first-ever issuance of renminbi bonds by foreign institutions in China.
The measures require the international development institutions to organise underwriters for the renminbi bonds to be issued publicly in China. These underwriters should currently be operating securities business in China. Upon issuance, the renminbi bonds can be traded and circulated in the market with the approval of the relevant supervisory and management authorities. The central bank has pointed out that the new policy will increase the scope of eligible bond issuers in China thereby promoting the development of the domestic bond market.