UPDATE 1-Taiwan sees RMB bond market hitting 2 bln yuan in 2013-sources

Thu Jan 24, 2013 8:39am GMT

Quotes

   

* BNP Paribas, Deutsche Bank expected to issue 1st RMB bond in Taiwan

* Underscores Beijing's efforts to internationalizes RMB

* Seen to bring competition to Hong Kong (Adds comments, details)

By Roger Tung

TAIPEI, Jan 24 (Reuters) - BNP Paribas and Deutsche Bank are among financial firms likely to issue the first Chinese yuan bond in Taiwan in a market expected to reach 2 billion yuan, two sources with direct knowledge of the situation said on Thursday.

China and Taiwan signed an agreement in September for the establishment of a clearing system for yuan transactions in the self-ruled island, setting the stage for local and foreign banks to launch the bond issue.

It also represents a further advance in China's efforts to promote the use of its currency in overseas markets to match its rising clout as the world's second-largest economy.

All renminbi bonds, dubbed "Formosa Bonds" in Taiwan and the equivalent of Hong Kong's Dim Sum Bond, will list on the Over-the-Counter (OTC) stock exchange.

"BNP, Deutsche Bank and some Taiwan banks have been actively in contact with local regulators about issuing renminbi (RMB) bonds," said one of the sources, close to the OTC.

"These banks have investment need of their clients to meet," added the source.

A bond trader at Deutsche Bank's Taipei office said that he's not aware of such a decision while BNP Paribas officials were not immediately available for comment.

Beijing has pushed the use of the yuan globally through bilateral currency swaps and trade settlement deals.

"It is a positive move to promote yuan internationalization and the overall pie of the offshore yuan business will become bigger," said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong.

RAPID GROWTH IN HK

Taiwan's RMB bond market is expected to hit 2 billion yuan this year, about one-fifth the size of Hong Kong when it launched its Dim Sum bonds in 2007, said the sources.

The size is not big enough to post serious threats to Hong Kong.

Hong Kong's offshore yuan bond market has developed rapidly since the first dim sum bond was issued in July, 2007. Total issuance volume registered at 148.5 billion yuan, including certificates of deposits no less than 1-year tenor, in 2012, according to Thomson Reuters statistics.

Issuance volume for the year is expected to rise about 20 to 30 percent from 2012, to 320 billion to 350 billion yuan including all certificates of deposits (CDs), according to estimates by Standard Chartered. Without CDs, the bank expects dim sum bond issuance in Hong Kong to reach 140 billion in 2013.

"The startup of Taiwan's dim sum bond market will bring some competition to Hong Kong, but Hong Kong will remain an attractive place for international issuers," said Cheung.

The yuan clearing agreement between China and Taiwan marked the beginning of the final stage of an economic integration that has drawn Taiwan closer to its one-time political foe and lifted trade to more than $160 billion annually.

Taiwan's financial regulator told Reuters in an interview on Wednesday that it will ask for additional quotas to invest in China when China's securities regulator visits next month, as cross-strait banking ties pick up pace..

Taiwan's central bank has said that the agreement will be implemented around the Chinese New Year, which falls in February this year.

(Additional reporting by Michelle Chen in HONG KONG; Writing by Faith Hung; Editing by Sanjeev Miglani)

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