Offshore RMB bond issues hit 277b yuan in H1: Singaporean banker

There were 611 offshore yuan bond issues worldwide in the first half of 2014, worth a total of 277 billion yuan ($44.6 billion), a senior executive of Singapore's DBS Bank said on Thursday.

The amount was close to the full-year total of 280 billion yuan for 2013, the bank's head of fixed income Clifford Lee told a press briefing.

In comparison, 16 billion yuan worth of offshore yuan bonds were issued in 2009, followed by 37 billion yuan in 2010, 151 billion yuan in 2011 and 173 billion yuan in 2012, respectively.

Lee said the issues from China's Hong Kong and the mainland accounted for a combined 86 percent of the total volume in the first half of the year.

He said it is encouraging to see an increasing number of international issuers testing the offshore yuan bond market to see whether they can engage the investors.

The supply is not there yet, but "enquiries have been building up, in Singapore, in Southeast Asia, because of the developments here. We are hopeful to see more coming," he said.

Short-term issues of two or three years accounted for 84 percent of the yuan bond issues in the first half.

The funding arbitrage between the onshore and the offshore markets continued to be the driver of the yuan offshore bond market for issuers, though the growing supply is expected to reduce such arbitrage in the long run.

The banking sector accounted for 36 percent of the offshore yuan bonds issued in the first half. The relatively lower proportion shows good growth in the non-bank sector.

Lee said he does not expect the yuan to be fully convertible within the coming two or three years as Chinese authorities are expected to push the process forward at a pace comfortable for them.

"There is a lot more to do ... because now it's really regulation-driven," he said. "Whatever we see now is the beginning ... clarification of the regulations, easing up the regulations. The next step would be to ease the flows of yuan onshore and offshore. That will really really give this market a boost."

"It's the fundamental use of the yuan that's going to drive the market. The more you make it relevant in terms of the application, the fast the market will develop," he added.

Piyush Gupta, chief executive officer of DBS Bank, said at the briefing that the bank sees the yuan offshore market as an important line of business with potentials in five or 10 years.

DBS Bank has a share of around 10 percent in the offshore yuan market in Hong Kong, which is more than double its share of the overall banking market there.

It is also active in the offshore yuan market in Singapore and China's Taiwan, Gupta said.

DBS has established a strategy with a focus on the wealth management business and the small and medium enterprises.

In the Chinese mainland market, it is focusing on the wealth management and the corporate clients, too.

The bank was first locally incorporated in China in 2007, and it had 29 branches across 10 major cities by the end of 2013. It does not disclose its financial results for the Chinese mainland market, but its combined income from China's mainland and Taiwan grew by 12 percent to S$743 million ($594 million) in 2013.

Gupta said he still saw "massive" opportunities for the bank in China despite the slowdown in the growth numbers.

Given that China is now a nine trillion US dollars economy, a seven percent growth would mean growth of $600 billion.

The macroeconomic slowdown may have a more obvious impact on the performance of the banking giants with a huge market share, but foreign banks like DBS can still find massive opportunities from the new growth, Gupta said.

Gupta said DBS positions itself as an Asian bank given that the Asia Pacific will be the region of growth.

Lim Say Boon, chief investment officer, group wealth management and private banking, said that the US equities valuations are no longer cheap, while the Asian equities offers "growth at a reasonable price."

He said he saw a "rotation" among the different regional markets such as the United States, Europe and Asia Pacific to have their bull market runs.

The near zero interest rate is powerful in supporting the equities market as ample liquidity tends to drive down the benchmark rates like the US Treasury bond yield.

The bank recommends "neutral" for Asian equities in three months, and "overweight" in 12 months, respectively, he said.