HONG KONG, July 16 (Reuters) - BNP Paribas SA has become the first foreign bank licensed to sell bonds directly to Taiwanese investors through a local branch, taking advantage of new rules aimed at making it easier for investors to buy such bonds.
The French bank began selling offshore bonds via its Taiwan branch on Tuesday, Lillian Su, BNP Paribas fixed income head for the country, told Reuters in an interview.
Previously, foreign banks had to market bonds to Taiwanese investors via offshore financial hubs such as Hong Kong, making the process cumbersome for both sides.
Insurance companies stand to benefit most from the new rules, Su said, which allow easier access to foreign bonds that provide higher yields than local debt.
Taiwan Power Co bonds due 2024 currently yield around 1.78 percent, for example, versus peers in Hong Kong and South Korea whose U.S. dollar bonds of similar maturity yield 3 percent to 4 percent.
“Given the heritage cost of the insurance policy, it’s very challenging for insurance companies to find bonds to match their needs in the domestic market,” said Su.
Insurers’ total foreign investment in 2013 was around $213 billion, Su said.
Taiwan’s regulators put in place stricter rules on how the country’s institutions could invest in the wake of the 2008 financial crisis, which saw many investors lose heavily on complex structured products.
Su said banks are lobbying regulators to have insurance companies exempted from the onerous Offshore Structured Product (OSP) guidelines.
“Under OSP guidelines, investors need to open an account under a trust bank, the documentation is very heavy, and the process is too lengthy. We wish insurance companies can be carved out,” said Su.
The latest rule change, though, reflects the dearth of bond supplies from domestic borrowers in an export-driven, current account surplus economy where corporations tend to be funds flush.
The lack of opportunities in domestic issuance is driving appetite for foreign debt instruments, which is encouraging many fund managers to include Taipei in their Asian itinerary along with Hong Kong and Singapore in marketing trips.
Last year, authorities allowed mainland Chinese firms to start issuing yuan-denominated bonds or so-called “Formosa bonds” in Taiwan, and in June this year sources said Chinese firms will be allowed to sell more yuan bonds from the second half of 2014. (Reporting by Lawrence White and Umesh Desai; Editing by Christopher Cushing)