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New Singaporean CNH Clearing Hub Draws Issuers, Increases Liquidity

Singapore has become the third country, after Taiwan and Hong Kong, to launch an offshore yuan (CNH) clearing hub as part of China’s plans to internationalise its currency. HSBC and Standard Chartered were two of the first banks to use the new infrastructure, with China’s ICBC mandated to do the clearing, after they released US$245m of dim sum bonds in the city state, which is hoping to act as the gateway location for trade with the Association of Southeast Asian Nations (ASEAN) grouping.

Mainland Chinese and Hong Kong borrowers have traditionally dominated the offshore market for CNH bonds, or dim-sum bonds as they are also known, since it started to take off in 2010 following the relaxing of government regulations and controls. The new Singaporean CNH clearing hub underscores the rising use of the yuan (also known as renminbi RMB offshore) for trade finance, trading on financial markets, and in other financial instruments.

According to HSBC it sold CNY500m worth of bonds in Singapore on 27 May when the new infrastructure officially opened, with the two-year bond offering carrying a yield of 2.25%. Rival bank, Standard Chartered, sold CNY1bn worth of dim-sum bonds on the same day, according to the ‘Wall Street Journal’, with its three-year bonds carrying a yield of 2.75%. Deutsche Bank has also actively been using the new infrastructure, although focusing on currency trading, which flows through the Singapore Exchange.

Commenting on the release of its bond, Matthew Cannon, head of global markets at HSBC Singapore said in a statement that the bank was, “delighted to have executed this landmark issuance which shows our commitment to further developing the offshore RMB market”.

The funds will be used to finance the bank’s expansion of RMB-based lending assets,” he continued. “This issuance will help open the market to other issuers looking to fund themselves internationally in RMB, offer new investment opportunities to the substantial pool of wealth managed in Singapore and assist in funding the rapidly growing RMB denominated trade business in Asia.”

In the same statement Guy Harvey-Samuel, group general manager and chief executive officer (CEO) of HSBC Singapore, said: “As well as this historic bond issue, the bank has also completed a number of other RMB transactions for our customers here in Singapore through the new yuan-clearing facility. These are just the latest in a series of pioneering RMB initiatives we have made in our bid to grow the range of RMB services to support the needs of our customers for yuan-denominated solutions and help boost Singapore’s development as a regional RMB clearing centre.”

News Analysis

As Standard Chartered’s rival issuance shows other banks are keen to use the new Singaporean facility too. It should all help to increase liquidity for corporate treasuries looking for funding or trade finance assistance in Chinese and Asian markets.

The location of Singapore as a gateway to the ASEAN trading bloc, which geographically surrounds the city state, is also likely to attract liquidity and is certainly part of the ‘sell’ that Singapore is using as it attempts to attract volume in the dim sum bond markets and battle other Asian financial centre hubs such as Taiwan or Hong Kong.

Further afield, London and other financial centres are also fighting to win a significant share of the growing offshore RMB business, with the SWIFT RMB tracker providing a useful guide to the varying successes or failures of rival centres and the rise of the currency.

The rise of offshore RMB as a trade finance and international currency will no doubt be further supported by Singapore’s latest move, and the currency can be expected to feature more and heavily in treasurers calculations and everyday operations. The imminent launch of CNH Hong Kong Interbank Offered Rate (Hibor) as a pricing benchmark should also be of interest to corporate treasurers operating in and around Chinese markets, or indeed on the increasingly China-dominated global trading scene.