In what it claims is the first offshore yuan (CNH) / US dollar (USD) cross-currency swap transaction using the new three-month CNH Hong Kong Interbank Offered Rate (Hibor) as the pricing benchmark, Citi has announced it has contracted with the Bank of China Hong Kong (BOCHK) to progress this landmark transaction. The new benchmark and interest rate fixing capability for CNH, also known as offshore renminbi (RMB), will be particularly of interest for corporate treasurers seeking to mitigate currency and other risk exposures.
The Treasury Markets Association (TMA) of the Hong Kong Monetary Authority announced last month its plan to launch the CNH Hibor benchmark, which is due to go live in June 2013, and is already attracting initial fixing transactions such as Citi’s.
Rival bank, Standard Chartered also announced this week that it has completed the first ever CNH Hibor fixing interest rate swap (IRS) transaction with an unnamed Hong Kong-based corporate client. The IRS deal is structured using the new three-month CNH Hibor fixing as the pricing benchmark over the next 12 months. The corporate client expects to limit their interest risk, and gain greater certainty of their exposure, via this mechanism.
More and more corporate treasury clients want to limit interest rate, currency or other risks associated with conducting trade in RMB as China’s economy, central position in the world economy, continues to grow. The Hibor benchmark could be beneficial in this regard.
The Citi transaction is being used as a tool to hedge against interest rate risks, says the bank, and will be effective in early July with a 12-month contract period. Interest rates for the two CNH and USD currencies are fixed every three months under the agreement, and are calculated using three-month CNH Hibor equivalent USD Libor respectively.
According to Citi, the deal reinforces its RMB trading capabilities and is part of the bank’s drive to establish a strong presence in the offshore RMB presence, alongside rivals such as Standard Chartered and others.