UPDATE 1-China banks to issue 20 bln yuan bonds in HK-sources

By Eadie Chen

BEIJING, June 20 (Reuters) - Five Chinese banks will soon issue up to 20 billion yuan ($2.91 billion) of bonds in Hong Kong in a major expansion of a state-led experiment to tap world debt markets and internationalise the use of the yuan, a regulatory and banking source said on Friday.

This would comprise the latest batch of yuan-denominated bonds offered in Hong Kong after Beijing let three mainland banks sell a total of 10 billion yuan of such debt in 2007.

China Development Bank and the Export-Import Bank are expected to issue 6 billion yuan and 5 billion yuan of bonds, the sources told Reuters.

Bank of China (3988.HK) (601988.SS), China Construction Bank (601939.SS) (0939.HK) and Bank of Communications (3328.HK) (601328.SS) would sell a total of 9 billion yuan, they said.

"The proposals for the five issuances have been submitted to the State Council and are quite likely to get approval within two weeks," the regulatory source said.

Details of the bonds' structure and value have not been fixed yet, the banking source said. But he added the bonds were likely to be for two- and three-year terms and carry a 3-3.5 percent annual interest rate.

The two sources declined to be identified as they are not authorised to speak to the media.

The official Financial News reported on Friday that shareholders of Bank of China had approved the lender to sell no more than 7 billion yuan of bonds in Hong Kong.

"But the actual size will not be that much," the regulatory source said.

He said that the regulators had shown preference to China Development and the Ex-Im Bank because as policy lenders they are mandated to lend in support of government policies and cannot accept retail deposits.

"The attitude of the regulator is to let the other three commercial banks share a total of about 9 billion yuan. Those commercial banks who issued debt last year might have to compromise a little bit," the official source said.

Last year, Bank of China, China Development Bank and Ex-Im bank issued 3 billion yuan, 5 billion yuan and 2 billion yuan of such bonds in Hong Kong, respectively.

BoCom, the fifth-largest lender, said in March it would seek to sell up to 5 billion yuan of bonds in Hong Kong.

China last year gave the greenlight to mainland banks to issue yuan-denominated bonds in Hong Kong in a move to liberalise China's capital controls and create a platform for Chinese lenders to get more involved in the international financial market.

The banking source said that many banks are interested in yuan bond issuance in Hong Kong but the next batch, which could be the third being approved by the government, might not come till the middle of next year.

Since 2004, the Hong Kong dollar has been exchangeable for up to 20,000 yuan a day and residents of the former British colony have been allowed to hold yuan deposits, as Beijing has moved to gradually loosen its currency controls. At the end of April, Hong Kong held about 76.6 billion yuan deposits in banks. ($1=6.8802 yuan) (Reporting by Eadie Chen, Editing by Jacqueline Wong) (eadie.chen@reuters.com; +8610 6627 1268; Reuters Messaging: eadie.chen.reuters.com@reuters.net))