UK appoints banks for first sovereign renminbi bond deal

The UK government has started the process of issuing the world's first non-Chinese sovereign bond in the Chinese currency on Thursday, by appointing three banks to help deliver the planned sale.

The three banks are Bank of China, HSBC and Standard Chartered.

According to a Bank of China release, the bank has always been dedicated to promoting the development of the renminbi market in the UK, and maintains a leading edge in capital markets, trade finance, deposits, and other related financial services.

Bank of China set up its office in London in 1929. The branch it established in London was the first overseas financial institution established by a Chinese bank.

Mike Rees, Deputy Group Chief Executive at Standard Chartered Bank, said the willingness of the UK Government to issue in renminbi demonstrates London's further development as a leading offshore renminbi centre.

"It will mark the first such issuance by a Western government, strengthening the already deep connections between UK business and Asia and will be another significant moment in the renminbi's continuing internationalisation," Rees said.

Andrew Carmichael, a partner at the law firm Linklaters, said the announcement is a clear sign to the market that Britain is keen to bolster its position as the world's leading centre for foreign exchange trading and a renminbi hub.

The UK government first announced its intention to sell a renminbi bond during the annual economic summit between the UK and China in London, in September.

The proceeds of the bond will be used to finance the nation's reserves. Currently, Britain only holds reserves in US dollars, euros, yen and Canadian dollars, so a British renminbi sovereign bond signals the renminbi's potential as a future reserve currency, the UK government said.

Britain is already the fastest growing market in Europe for renminbi payments, more than doubling volumes from July 2013 to July 2014. In 2013, total renminbi foreign exchange trading in London averaged $25.3 billion per day, which was a 50 per cent increase from 2012.

British Chancellor George Osborne said that key to the UK's long term economic plan is increasing its exports to fast growing economies like China and attracting more investment to the UK.

"To do that, we need to make sure China's currency, the renminbi, is used and traded here, as that will be not only good for China, but good for British jobs and investment too.

"That's why I'm delighted to announce we're kicking off the deal for Britain's renminbi bond, the first by a western country. It's another step in cementing Britain's position as the centre of global finance," Osborne said. The bond will be issued in due course subject to market conditions, and further details of the transaction will be announced by the syndicate banks, the Bank of England and HM Treasury.

Britain's sovereign renminbi bond will be a stand-alone issuance and will be of benchmark size. It will contribute liquidity to the small but fast-growing offshore renminbi market and attract other market players in both the private and official sectors. The Bank of England is acting as HM Treasury's agent in managing the issuance of the renminbi bond. Officials from HM Treasury, alongside the syndicate banks, will be delivering an investor presentation in London on 13 October 2014.