Analysis-Cheap yuan catapults China to second-biggest trade funding currency
By Samuel Shen and Rae Wee
SHANGHAI/SINGAPORE (Reuters) — Global companies are making a beeline for China's debt markets, issuing record amounts of yuan-denominated bonds and borrowing heavily from mainland banks, capitalising on rock-bottom yuan interest rates as funding costs elsewhere jump.
Companies and banks are raising record amounts of cash through yuan bonds issued in mainland China and in Hong Kong, known as panda and dim sum bonds, respectively.
The surge in their borrowing from Chinese banks has catapulted the yuan past the euro into becoming the second-biggest currency used in global trade finance, providing a fillip to Beijing's ambitions to internationalize the yuan.
The global rush to borrow from China is counterintuitive, coming as international investors are shunning the world's second-biggest economy out of concerns about geopolitical tensions and weak growth, says Fiona Lim, senior FX strategist at Maybank.
«While the fundamental story is not compelling for Chinese investors looking for growth, the depreciation of the yuan as well as the rate cuts result in a much cheaper cost of borrowing,» Lim said.
Foreign companies such as German carmaker BMW (ETR:BMWG) and Crédit Agricole S.A as well as overseas units of Chinese firms raised a record 125.5 billion yuan ($17.33 billion) selling panda bonds during the January-October period, a 61% jump from the same period last year.
The National Bank of Canada (OTC:NTIOF) raised 1 billion yuan from the sale of a three-year panda bond at a coupon of 3.2% late last month, a bargain compared to rates of 4.5% at home.
The issuance of dim sum bonds in Hong Kong also hit a record high, surging 62% from a year ago to 343 billion yuan during the first eight months.
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