Nearly 20 senior treasurers from various industries ranging from telecommunications, refining and retail expressed that while they felt positive over the rate of Renminbi (RMB) internationalisation, they were adopting a cautious and conservative approach in managing RMB liquidity, funding and trade settlement, they said at a meeting hosted by Standard Chartered Bank in Hong Kong.
The group said that one of the key points was that there would be need to be a greater availability of products for hedging offshore RMB as corporates are waiting for specific developments in RMB liquidity management and infrastructure, such as two-way flow of funds and RMB denominated investment products, but also for RMB to gain wider acceptance as a trade settlement currency beyond Hong Kong.
In 2010, China implemented a number of regulatory changes that essentially liberated its RMB policy, that would make it easier for foreign institutions to originate and receive payments for companies trading with Chinese firms. It also allowed foreign entities to access mainland China’s interbank bond market.
Various treasurers said that for some participants, RMB remains preferred, as the restricted nature of RMB provided greater predictability and certainty. Most participants voiced their preference to see whether RMB-denominated financial products would evolve into a complete end-to-end financial solution.
Meanwhile, in addition, one of the key factors in whether a company adopts RMB as a settlement currency is the impact of FX costs on their business margins. Thus the rate of adoption will also factor upon the FX impact on business margins.
Another key issue that has made treasurers cautiously optimistic about the liberalisation of the RMB is the demand for settlement in RMB from supply chain partners in nascent stages.
Meeting participants said that global changes, as a result of the financial crisis, have prompted a change in the bargaining position of Chinese suppliers. Participants reported that Chinese suppliers are starting to leverage their commercial strength to request financing in RMB, not USD.
Following currency swap agreements, Chinese buyers have been able to trade in RMB with emerging markets such as Indonesia, rather than the traditional USD denominated trade with European/US buyers who dominated trade prior to the financial crisis.
The challenges for suppliers seeking RMB financing were also highlighted. As the Chinese government RMB lending quota may mean that banks are unable to lend to buyers, Chinese companies may therefore look to establish their sourcing base in Hong Kong to access additional funding, including off-balance-sheet arrangements that are not possible on the mainland.
But more positively, the group said that competitive RMB raising rates will encourage uptake.
Attendees were pleased with the rate in which the number of fund raising methods has grown. Nonetheless, they are mindful of the costs involved in the different modes of doing so.
Recent dim sum bond issues have generated strong interest in using RMB bonds to fund corporate activity in mainland China. But for some companies, the administrative delays involved in transferring the proceeds of a dim sum bond back to the mainland have proved unappealing, and they prefer to continue using traditional onshore vanilla bank lending. However, companies who are already issuing bonds in other markets found the use of dim sum bonds more attractive, as they were able to leverage their existing infrastructure to make a dim sum bond issue.
With the increase in the number of Mainland Designated Enterprises to over 67,000, one can only expect more activities in the pipeline,” said Neil Daswani, Regional Head of Transaction Banking, North Asia at Standard Chartered, while speaking at the meeting. “The feedback from our clients highlights their views, and has reinforced our understanding and commitment to continuously journey with them and support their business needs throughout the various stages of their RMB journey.
Some voiced that raising USD funding in Hong Kong at a lower borrowing rate, then transferring funds onshore via shareholder loan was a strong favourite – even after tax liabilities. Converting USD funding to RMB also offers the expected benefit that RMB will strengthen against the dollar in the short to medium term.
(LB)