Wednesday, October 20, 2010

Yuan Bonds Find Big Demand

Yuan Bonds Find Big Demand

The Asian Development Bank Raises $180 Million; World Bank Is Next Up

By CHESTER YUNG
HONG KONG—The Asian Development Bank said Tuesday it sold 1.2 billion yuan (US$180 million) in yuan-denominated bonds, more than it initially targeted, after the offering met strong demand from investors.

It was the first sale of yuan-denominated bonds offshore by the Manila-based multilateral bank, which hopes to spur growth of the yuan debt market outside mainland China in order to broaden funding options for Asian borrowers.

In another sign of growing activity in the so-called offshore yuan market, the World Bank's financing arm, International Finance Corp., said Tuesday that it plans to sell yuan-denominated bonds in Hong Kong to finance private-sector rural development and cleaner production projects in China, though it didn't say how much it plans to raise.

The market for yuan-denominated debt outside mainland China has begun taking off as China experiments with loosening its controls on the currency, which isn't freely convertible. Several banks have issued offshore bonds denominated in yuan, also known as the renminbi, and other companies have begun following suit. In August, McDonald's Corp. raised 200 million yuan (US$30.1 million) in yuan-denominated bonds sold in Hong Kong to finance its expansion in China.

Demand for yuan bonds is fueled in part by expectations that the currency will appreciate.

The ADB originally sought to raise 1.0 billion yuan but increased the size of the deal as the offering was more than two times oversubscribed. It priced the 10-year bonds at an annual coupon of 2.85%, the low end of an indicative range of 2.85% to 2.90%.

"The bond will act as a useful benchmark for other potential borrowers, helping develop the offshore (yuan) bond market into an important source of funding for borrowers as well as an investment destination," Bindu Lohani, ADB's vice president of finance and administration, said at a news conference.

The ADB has also applied to list the bonds on the Hong Kong stock exchange, making them the first yuan-denominated bonds to be traded and settled there. It said it will mainly use the proceeds of the bond sale to finance its projects in China, particularly in clean energy including wind power, water treatment and infrastructure.

The ADB may issue more yuan bonds, depending on project-financing needs in China as well as demand from investors.

Bank of China (Hong Kong) Ltd. and Deutsche Bank AG handled the deal for the ADB, which is controlled by a number of nations both inside and outside Asia.

Write to Chester Yung at chester.yung@dowjones.com

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