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Mainland China-based banks consider listing Formosa Bonds in Taiwan

TAIPEI, Taiwan -- Eying Taiwan's future status as a major offshore renminbi market, some of China's flagship state-run banks are said to be looking at the possibility of listing Formosa Bonds in Taiwan, the Financial Supervisory Commission (FSC) confirmed Tuesday.

As market expansion for offshore yuan banking is going full tilt, some heavyweight Taiwan-based securities conglomerates are aggressively convincing some state-run Chinese banks to issue Formosa Bonds in the Taiwan market.

FSC officials verified that some Chinese banks have expressed interest in issuing Formosa Bonds. Those banks include the Industrial and Commercial Bank of China (ICBC) and the China Development Bank (CDB).

As the first Chinese bank to issue Dim Sum Bonds — non-Hong Kong dollar-denominated bonds issued by a foreign institution — on the Hong Kong Stock Exchange, CDB is particularly enthusiastic about the issuing of Formosa Bonds.

Formosa Bonds are non-New Taiwan dollar-denominated bonds issued by a foreign institution in Taiwan's capital market.

Data and statistics show that the scale of Dim Sum Bonds issued by Chinese banks that range from 2-3 billion yuan. Respondents think potential sales of Formosa Bonds issued by ICBC or CDB would be upwards of 2 billion yuan.

Currently, Taiwan's yuan-denominated bonds carry a maturity period on average of three years and a coupon rate of 2.9 percent while Dim Sum Bonds, on average, carry the same maturity period and coupon rate of 3-3.3 percent.

“For global investors who already have access to the Dim Sum Bond market, Formosa Bonds lack appeal,” a Taipei-based HSBC dealer told the United Daily News of Taiwan.

“However, with Taiwan's existing low-yield environment, local banks and securities firms are happy to buy anything that has better returns than New Taiwan dollar bonds,” the dealer said. “A lack of secondary-market transactions will make Formosa Bonds unappealing to more active investors too.”

Apart from the low yields, Formosa Bonds' low liquidity will be a problem for investors too. Some NT$500 billion in bonds is traded in Taiwan each month, compared to about 7 trillion yuan in China.

Valuation and market liquidity are currently issues in Taiwan's yuan market, but in the medium term, investors in Greater China view Taiwan as an upcoming offshore yuan market powerhouse.

In a separate report, Deutsche Bank has raised 1.1 billion yuan from Formosa Bonds in Taiwan, becoming the first international lender to target Taiwanese investors with a deal in the Chinese currency.

Unlike other yuan-denominated bonds in Taiwan meant for institutional investors, Deutsche targeted retail investors with denominations as low as 10,000 yuan.

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