x Abu Dhabi, UAEFriday 19 January 2018

Emirates NBD success may lead way for yuan bonds

Emirates NBD's first bond sale denominated in Chinese currency received almost six times as many orders as had been sought, leading the way for other companies.

Emirates NBD's first bond sale denominated in Chinese currency received almost six times as many orders as had been sought.

That is expected to lead the way for other Middle East companies to raise funds from the nation's booming economy.

The UAE's biggest bank by assets raised 750 million yuan (Dh436.04m) in a so-called "dim sum" offering, the first of its kind in the region.

The bank's debut yuan bond sale was 5.8 times oversubscribed by investors, with an order book of 4.3bn yuan. A total of 92 per cent of orders for the bond came from China, Singapore and Taiwan, with the remainder coming from Europe and the Middle East.

International companies including McDonald's, Caterpillar and Volkswagen have listed yuan-denominated bonds in China recently.

The Chinese government is edging towards full convertibility of the yuan for use as a reserve currency to rival the dollar and the euro with the development of a bond market in Hong Kong, intended to allow global companies to tap bank liquidity in the world's most populous nation.

The level of demand for the bond meant Middle Eastern companies with a similar credit rating would be tempted, said Debashis Dey, the head of capital markets at the law firm Clifford Chance.

"If you're a business here that's been interacting with China as a market and have a use for this currency, somebody has broken the ice now," he said.

Companies looking to diversify their funding base would now find it much easier to issue in Hong Kong, Mr Dey added.

"As part of the story of going out there to Hong Kong, you'd probably have to educate investors about Dubai and the UAE more generally," he said. "That hard work has been done now by Emirates NBD."

The Chinese yuan lacks full convertibility with the dollar, owing to the Chinese government's reluctance to spark a flood of liquidity into or out of the country.

Efforts to internationalise the yuan have accelerated recently, with London becoming the first international financial hub to be granted Chinese backing to become an offshore yuan trading centre in January.

The Dubai International Financial Centre is hot on its heels, with plans for a similar move awaiting a stamp of approval from UAE regulators, Reuters said last month.

A total of 36.2bn yuan has been raised through dim sum sales so far this year, according to data from Bloomberg.

The opening of this market may offer an alternative to sukuk sales for Middle East companies to access funding, which has been in vogue during the past few months to bypass frozen western capital markets and tap institutional investors in the Gulf, Malaysia and Indonesia.


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