Formosa bonds of mainland's state-owned banks hit GreTai
By Kathryn Chiu , The China Post
December 10, 2013, 12:25 am TWN
TAIPEI, Taiwan -- The Formosa bonds of four major Chinese state-owned banks are set to begin trading on the GreTai Securities Market (GTSM) on Tuesday, massively expanding the Formosa bond market scale in 2013 by 1.72 times to 10.6 billion.
The above-mentioned four banks are the Hong Kong branches of China Construction Bank Co. (CCB), Bank of China (BOC), Bank of Communications Co. (BOCOM) and Agricultural Bank of China (ABC), whose major shareholder is the mainland China Ministry of Finance.
GTSM Chairman Wu Sou-shan (吳壽山) said that, with 6.7 billion renminbi worth of Formosa bonds issued by the four banks, the Formosa bond issuance scale in 2013 will move beyond the government's annual goal of 10 billion yuan to 10.6 billion yuan.
Taiwanese banks, particularly those with large outstanding renminbi deposits, such as Mega International Commercial Bank (兆豐銀) and CTBC Bank (中信銀), will likely benefit from the expansion of Formosa bonds issuances, according to a Moody's Investors Service report.
According to United Evening News, the Hong Kong arms of CCB, BOC, COBOM and ABC issued a total amount of 6.7 billion yuan in Formosa bonds.
CCB Hong Kong issued 2 billion worth of 3 year, 3.25-percent bonds. BOC Hong Kong raised 2 billion yuan worth of 2 year, 3.15-percent and 3 year, 3.25 percent securities.
BOCOM Hong Kong raised 1.2 billion yuan in 3 year, 3.4-percent and 5 year, 3.7-percent bonds, while ABC Hong Kong issued 1.5 billion yuan in 3 year, 3.3-percent and 5 year, 3.6-percent notes.
Taiwan's onshore banks started taking yuan deposits in February, after Beijing and Taipei established a direct yuan-clearing system in late January. Taiwan's domestic yuan deposits had reached 123.35 billion yuan by the end of October.
FSC Probes Price Competition of Bond-undertaking Banks
Based on the experience of Hong Kong's equivalent Dim Sum bond market, large bonds sold by major Chinese banks often offer longer tenures and higher yields over interbank rates. As a result, Taiwanese banks may benefit from a yield pick-up on the Formosa bonds they buy, which will in turn help improve the margins on their RMB books, analysts said.
However, Kuomintang legislator Lu Shiow-yen questioned the under-valuation of the Formosa bond market yesterday in a meeting of the Legislature Finance Committee. According to Lu, Hong Kong's equivalent Dim Sun bond has an average yield rate of 5 percent, much higher than the 3 percent of Formosa bonds.
Financial Supervisory Commission (FSC) Chairman Tseng Ming-chung (曾銘宗) admitted that recent movements were caused by price competition among undertaking banks, particularly state-invested banks. Mega International Commercial Bank (兆豐銀) and Bank of Taiwan (台灣銀行) are the two state-invested banks seeing to the issues of the Hong Kong units of CCB and BOC.