Dagong expects more RMB denominated debt in Europe

Analysts of Dagong Europe, the branch of China-based Dagong Global Credit Rating Co., Ltd. in Europe, said on Tuesday they expected more European issuers to issue RMB denominated debt.

In a commentary dedicated to Chinese banks going overseas, Dagong Europe highlighted the steps taken to expand outside of China, initially through international lending, then through offshore RMB debt issuances and lately expanding their investment portfolios towards other currencies and non-Chinese RMB debt issuers.

"In our view, Chinese banks are expanding overseas not only to achieve an international strategy, but also to diversify credit risk and widen their economic asset allocation," Carola Saldias, head of financial institutions analytical team at Dagong Europe, said in the commentary.

In addition, she underlined, the recent growth of the offshore RMB bond market is helping - specifically Chinese investors - to diversify their investment portfolios adding securities issued by non-Chinese entities.

Though Chinese banks' overseas lending is still very limited, it is growing significantly outside of Hong Kong, mostly in Africa, Europe and Latam, Dagong Europe's analysts said in the commentary, expecting overseas loan exposures to increase.

Investment portfolios will be composed by a larger percentage of securities from foreign issuers, reducing the counterparty concentration on government-related-entities, policy banks and financial institutions in China's mainland, according to the commentary.

"Frankfurt, London and Luxembourg are playing a key role to open the RMB debt market to Chinese and non-Chinese issuers," Dagong Europe's analysts highlighted.

"An increased number of Chinese and non-Chinese issuers are entering the offshore RMB debt market in Europe" and "we expect more European issuers to issue RMB denominated debt, deepening the offshore market outside of Hong Kong," they concluded.

Milan-based Dagong Europe is under and compliant to the European framework regulated by the European Securities Market Authority (ESMA) and issues credit opinions on financial institutions including insurance companies and non-financial corporates.

The rating agency was established in 2012 as a Sino-Italian joint venture between Dagong Global Credit Rating and Mandarin Capital Partners, a private equity fund by institutional investors, and was the first Asian rating company operating in the European Union (EU).