HSBC's London RMB Issuance Highlights China Focus
HSBC Bank’s recent renminbi (RMB)2bn issue marks a logical step in the bank’s aspiration to capitalise on its significant investments in China, and a natural extension of HSBC group’s dominant market position in Hong Kong, where it leads in underwriting offshore RMB debt.
China’s currency controls mean that the supply of offshore RMB is limited, particularly outside Hong Kong where customer deposits are around RMB600bn. Therefore Fitch Ratings thinks that this funding source will have a limited impact on HSBC group’s overall asset and liability profile for the immediate future, notwithstanding the issue’s benchmark size and the fact that these markets are growing rapidly.
Profit from related activities may, over time, become notable as the bank stands to gain from its Hong Kong presence. For example, all payments to holders of this newly issued note will only be made by transfer to a RMB bank account maintained in Hong Kong. The clearing bank for RMB outside of China, Bank of China (Hong Kong), is also based in Hong Kong. More directly related cross-selling revenues should continue to derive from selling hedging and other products to its global customer base for who HSBC underwrites RMB issuance in Hong Kong.
It is the first time that HSBC Bank has raised benchmark funding in the illiquid Chinese currency, for which re-deployment opportunities outside of China remain limited and remittance back into China is significantly restricted. The new issue opens up another alternative for investors to invest in the RMB, which continues its internationalisation.