* Deutsche becomes first foreigner to raise renminbi in
* Bank gets lower rate than it would on Dim Sum bonds
* Fast-growing deposit base prompts search for more issuers
By Nethelie Wong
June 7 (IFR) - Taiwan's efforts to promote itself as an
offshore renminbi hub received a boost this week when Deutsche
Bank became the first foreign financial institution to target
bond investors there with a issue in the Chinese currency.
The Rmb1.1bn (US$175m) Bao Dao bond - named after the
Chinese for "treasure island", a popular reference for Taiwan -
comes less than four months after Taiwanese banks began
accepting renminbi deposits.
Bankers said the depth of local demand meant several foreign
issues were likely to follow as the island steps up its push to
compete with Hong Kong as a funding centre for the Chinese
"This transaction reflects the strong demand for renminbi
assets in Taiwan, and points to significant potential for the
growth of this market. We are confident that we will be the
first of many international issuers that come to Taiwan seeking
renminbi financing," said Cynthia Chan, Deutsche's head of
global markets for Taiwan.
The German bank printed a Rmb1bn three-year at 2.45% and a
Rmb100m five-year non-call one at 2.65%. Both tranches were
priced near the high-ends of initial indications of 1.5%-2.5%
for the three-year and 1.7%-2.7% for the five-year.
The levels, however, were cheaper than those that other
issuers have achieved on recent deals in the more liquid Dim Sum
market. For instance, Agricultural Bank of China Singapore
branch priced on Tuesday a Rmb200m three-year CD at 2.9%, or a
yield 45bp higher.
Deutsche's success may encourage other foreign issuers to
tap the Taiwanese market for the arbitrage opportunities
available from cheap renminbi funding.
With no restrictions on taking the proceeds overseas, the
renminbi it raised at 2.45% could be used to fund trade finance
elsewhere at much higher rates.
The arbitrage comes from tapping a captive retail investor
base, where individual savers have limited ability to invest in
foreign bonds and few other options for their renminbi deposits.
Local banks only pay 1.1% to 2.8% per annum on time
deposits, and that interest income is subject to tax. Retail
investors do not pay tax on Bao Dao bond investments.
A withholding tax of up to 17% on overseas institutional
investors also keeps out foreigners, creating a gap in yields
between the Taiwanese and other offshore renminbi markets.
It was no wonder, therefore, that Deutsche's bond came with
a very low minimum denomination of Rmb10,000, targeting the
local retail base.
The ability to raise cheaper renminbi from retail investors
is one of the draws that may attract more foreign issuers to
Taiwan and, as a result, help it become a more important centre
for the currency. However, it has also already attracted
criticism from some local players that it may siphon liquidity
away from the local market.
"It's like an ATM machine. You draw money from it, but use
it somewhere else," said a local banker.
Taiwan put the regulation in place to accept renminbi
deposits in February, at the same time as it started clearing
the Chinese currency. Since then, renminbi deposits in Taiwan
have grown from zero to Rmb60bn, making it the third largest
liquidity base for the currency outside of China within less
than four months.
Deutsche estimates that Taiwan's renminbi deposit base will
grow to Rmb100bn at the end of 2013, and to Rmb200bn in the next
two to three years, with the support of both corporate and
institutional and retail investors.
Analysts predicted that, come 2018, the deposit base would
reach Rmb600bn, or about 10% of the NT$33trn (US$1trn) of total
deposits in Taiwan at the end of 2012.
To create investment opportunities for that growing
liquidity pool, bankers believe Taiwan will remain keen to
welcome foreign issuers entering to build up the local market.
For companies that have already established a track record
in Formosa bonds - foreign currency bonds in Taiwan's local
market - the approval process is relatively quick.
Deutsche, for instance, received approval from the Financial
Supervisory Commission, Taiwan's securities regulator, to issue
up to Rmb2bn of Bao Dao bonds in March, only a couple of weeks
after local renminbi deposits were first allowed. The talk among
bankers now, is that several other foreign issuers are lining up
to follow Deutsche's lead.
(Reporting By Nethelie Wong; editing by Christopher Langner and