Read - Finance - Yuan Bonds (2009/6/29)

BEA yuan bonds have appeal
Katherine Ng (Monday, June 29, 2009)

The window of opportunity for retail investors to benefit from any yuan appreciation opens again tomorrow when the mainland unit of the Bank of East Asia (0023) offers yuan bonds. BEA is selling bonds worth 4 billion yuan (HK$4.53 billion), with 3 billion yuan earmarked for institutional investors
Investors will be paid a coupon of 2.8 percent. That is more than double the 1.29 percent HSBC China last week offered institutional clients for its two-year corporate bonds.

"The rate is reasonable and is comparable to the 3 percent coupon that mainland financials offered during 2007," said Stanley Wong Yuen-fai, director and deputy general manager at ICBC (Asia) (0349), in looking to the year when the yuan appreciated the fastest. He believes yuan bonds are attractive, especially as the savings rate for bank deposits is almost zero. Market participants said HSBC's 1.29 percent rate was not comparable because the Shanghai interbank offered rate, which the lender used, is not a common reference for Hong Kong and overseas investors.
"Yuan bonds in the secondary market are trading at around 3 percent," a trader said. "Although the yuan deposit rate in the mainland dropped significantly it did not affect rates in Hong Kong."

Wong said the latest yuan bonds should be able to offer a coupon of around 3 percent. The bonds could be attractive to local investors, who now have 54 billion yuan deposited in Hong Kong banks. The banks offer an interest rate of 0.7-0.8 percent. Additionally, Beijing's aim is to internationalize the yuan, so its appreciation will continue and benefit bond investors.

But potential investors should ensure they are properly briefed by bank staff, even if they have bought bonds before, executives of distributor banks said.
The Securities and Futures Commission has set stricter approval requirements in that bank staff should tell investors about the details and potential risks.
Chief Executive Donald Tsang Yam- kuen and Mu Huaipeng, director-general, Financial Market Department of the People's Bank of China will attend the ceremony today to launch the yuan bonds.
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