International finance centres in Europe are battling it out to become the leading destination for offshore renminbi issuers, with both Frankfurt and Luxembourg registering successes on this front in recent months.

Following the recent renminbi-denominated bond issuances by Chinese banks in both Frankfurt and Luxembourg, competition to lead the offshore market in the Chinese currency has gained new life, with both financial centres aiming to become the hub in continental Europe for renminbi issuers.

Agricultural Bank of China’s Hong Kong branch placed Rmb1.2bn ($19.2m) two-year notes, yielding 3.25%, on the Frankfurt Stock Exchange (part of Deutsche Boerse), marking the first issuance by a Chinese bank to be listed in Germany. Meanwhile, the Bank of China’s Luxembourg branch issued its first ‘Schengen’ bond on the Euro Multilateral Trading Facility market, part of the Luxembourg Stock Exchange. It was a Rmb1.5bn three-year bond, yielding 3.5%. Both products were priced on the same day, in early May 2014.

the fight to become the offshore renminbi hub

Right signals

Luxembourg has been quick to accommodate Chinese banks, and now serves as the European headquarters for three of the country’s largest lenders. This compared with other aspiring offshore renminbi hubs in the wider European region – including London – which have imposed more stringent capital requirements on foreign banks, and demanded that they operate as fully capitalised subsidiaries, rather than branches.

Over the years, Luxembourg has grown to attract increasingly larger international bond issuances, thanks to its efficient procedures and focus on international currencies – there are currently about 50 different currency-denominated products on the exchange. It also hosted the first ever renminbi-denominated fixed-income issuance in Europe, by German automaker Volkswagen, in 2011.

Frankfurt also has clear ambitions to rise as an international renminbi centre. Germany’s central bank signed an agreement earlier this year with the People’s Bank of China committing to improve settlement of renminbi payments. As competition for renminbi business heats up, it is far from clear which of the two centres will emerge as issuers' preferred choice. Some wider bond data, however, helps to frame the cities' existing bond appeal.

The World Federation of Exchanges offers comparable bond data for both the Luxembourg Stock Exchange and the Deutsche Boerse. In spite of Deutsche Boerse’s significantly larger size, Luxembourg’s data shows a bigger and more active bond market for new deals. New issuances raised a total of $1168bn in Luxembourg in 2013, against only $466bn on the Deutsche Boerse. Further, the number of new bonds listed is higher in Luxembourg, with 5650 new issuances against 2762. This trend was a continuation from 2012, which was a better year for new bonds’ volumes for both exchanges.

The Deutsche Boerse does however continue to generate far larger trading volumes, as bonds listed in Luxembourg have proved less liquid. Trade on foreign bonds, in particular, was $11.5bn in Germany against $504m in Luxembourg.


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