REFILE-UPDATE 1-Taiwan to take more steps to lure yuan deals to "Treasure Island" market

Tue Jun 18, 2013 4:48am EDT

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(Fixes word in second last paragraph to "one")

By Miaojung Lin and Faith Hung

TAIPEI, June 18 (Reuters) - Taiwan will take more steps to cut through a thicket of restrictions to sell bonds denominated in the Chinese currency as it attempts to become yet another offshore yuan trading hub in Asia after Hong Kong and Singapore.

Taiwan will waive the requirement for companies selling yuan bonds to get credit ratings before offering yuan bonds, sources at the island's financial regulator told Reuters on Tuesday.

It will also waive the requirement that foreign companies selling yuan bonds to local institutional investors must be exchange-listed public companies overseas, the sources at the Financial Supervisory Commission said.

The sources declined to be identified as the matter is not public yet. The steps are expected to be announced this week.

"Companies and investors have been very excited about yuan bonds, but the market size of yuan bonds has not been able to grow big because of the limitations of Taiwan regulations," said a trader at state-run Mega Securities in Taipei, a brokerage.

"Now, Taiwan regulators are finally easing rules governing yuan bond sales, so we expect the market to boom," she said.

Deutsche Bank issued the first offshore yuan (CNH) bond from international lender in Taiwan after it raised 1.1 billion yuan ($179.6 million) earlier this month.

The Bao Dao bond - named after the Chinese phrase for "treasure island", a popular reference for Taiwan - comes less than four months after Taiwan introduced offshore renminbi business.

Renminbi deposits in Taiwan have grown from zero to 60 billion yuan since banks were first allowed to accept them in February.

Contrast that with the yuan deposit base in Hong Kong which is more than 10 times that of Taiwan at more than 650 billion yuan, excluding outstanding bonds and bills.

But the yuan deposit base in Taiwan is expected to grow. Deutsche Bank estimates the island's renminbi deposit base will grow to 100 billion yuan by the end of 2013, and to 200 billion yuan in the next two to three years.

However, despite the relaxation planned by Taiwan's authorities, the market is expected to grow slowly as a number of stumbling blocks remain for potential issuers.

One is the presence of a far bigger and liquid yuan market practically next door in Hong Kong, so the savings cost to issuers via issuing yuan bonds in Taiwan has to be substantial for new issuers. (For a chart on bond sales in Hong Kong, see link.reuters.com/max27t)

Second, issuers have to adhere to additional requirements including filing more documents with Taiwan's regulators and the presence of a sizeable withholding tax for offshore investors. ($1 = 6.1250 Chinese yuan) (Additional reporting by Nethelie Wong at IFR; Writing by Saikat Chatterjee; Editing by Kim Coghill)

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