Standard Bank Group acted as sole bookrunner for the latest placement of China Development Bank's RMB500-million worth of three-year offshore renminbi bonds to African central banks. This is the first time that African central banks have participated in an offshore renminbi bond investment in primary markets.China Development Bank is a major state-owned policy bank in China.
This landmark bond sale to Africa was a tranche of China Development Bank's recent RMB2.5-billion bond offering, in which Standard Bank Group was one of the seven joint bookrunners and lead managers. China Development Bank issued three-year and 20-year offshore renminbi-denominated bonds in Hong Kong (the so-called dim sum bond), with participation from Asian and non-Asian investors.
About 60% of the total dim sum bonds were allocated to European, Middle East and African investors, and Standard Bank Group's allocation, which was placed with African investors, accounted for one fifth of the total bonds China Development Bank issued, and was thehighest amongst all the bookrunners and lead managers.
Mr Bing Fan, Managing Director of Standard Bank China, says: "In this bond issuance, Standard Bank placed the first dim sum bonds with eastern and western African central banks. The allocation to African central banks is a reflection of the latest trend in the currency reserve strategies of some African nations, which have started to include the renminbi into their foreign exchange reserve portfolios. It bolsters two-way capital flows between China and Africa, which is exciting for both sides as until recently capital has mostly been flowing from China to Africa.
"The bond sale also marks an important step in the renminbi's road to becoming a global reserve currency, which is key to the internationalisation of the currency."
Jeremy Stevens, a Standard Bank Group economist based in Beijing, says: "The internationalisation of the renminbi is inevitable, and Africa is a fertile soil and important front for this process, with RMB36-billion in trade done in the Chinese currency already during 2011. Africa should use Beijing's desire to broaden the geographical reach and use of the renminbi to reinforce its relevance.
"The internationalisation of the Chinese currency will lower transaction costs, enable better working capital and improve risk management practices, which along with various incentives, will support trade flows. Investment will find support through cheaper sources of funding, which is raised in Hong Kong orthrough loans, and better-protected capital with hedging instruments. This will result in more favourable terms for African projects," says Mr Stevens.
Mr Fan highlights Standard Bank Group's commitment to promoting renminbi internationalisation by expanding and encouraging the use of the currency in trade settlement between China and Africa.
"The issuance of CDB's dim sum bonds comes at a time when African central banks need to diversify their currency reserves in the context of the Eurozone crisis. Standard Bank identified and capitalised on this opportunity and facilitated the deal, which was done within a month.
"We believe that African central banks will become increasingly interested and involved in the offshore renminbi market as the continent's national and personal wealth grow in tandem with its economic and political development."
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