Hong Kong to list first Shanghai free-trade zone bond to defend yuan hub status

Hong Kong is preparing to launch its inaugural Shanghai free-trade zone bond, leveraging the listing to assert its position as the world's leading offshore yuan hub, despite increasing competition from its mainland counterpart. Hong Kong Exchanges and Clearing revealed on Thursday that Shanghai Electric Global Capital, a financing entity of power and industrial equipment maker Shanghai Electric, will debut a 1.5 billion yuan (US$222.4 million) green free-trade zone bond on August 20.

This three-year bond, offering a 1.8 percent coupon, marks the first instance of a non-financial corporate free-trade zone offshore bond being offered to the public.

The bond's issuance is orchestrated by Bank of China, functioning as both global coordinator and lead manager, utilizing its Hong Kong and Shanghai branches to facilitate the cross-border offering. The announcement coincides with Hong Kong's efforts to bolster its reputation as the premier international gateway for yuan and green finance, even as Chinese authorities strive to enhance Shanghai's offshore financial prowess.

In June, the governor of the People's Bank of China, Pan Gongsheng, unveiled a pilot foreign-exchange trading program in the Shanghai free-trade zone during the Lujiazui Forum. This initiative is part of Shanghai's broader strategy for offshore finance, which also encompasses free-trade zone bonds, trade financing, and international treasury centers.

Nevertheless, Hong Kong maintains a commanding market presence. According to the Hong Kong Monetary Authority, the city held 1.1 trillion yuan in offshore deposits as of June – the largest pool outside mainland China – and facilitates over 70 percent of all global offshore yuan transactions. To sustain its leading edge, HKMA's chief executive, Eddie Yue Wai-man, unveiled a roadmap in July urging banks to expand their renminbi product offerings in areas such as trade, financing, and treasury management to reinforce Hong Kong's role as a global "offshore laboratory and distribution hub" for the currency.

The upcoming bond issuance is expected to bolster HKEX's growing fixed-income product offerings, bringing its cumulative new bond listings to more than 153 thus far in 2023, as reported by the bourse. The exchange stated that the issuance will "enhance fundraising activity in its bond market while underscoring Hong Kong's status as a leading international hub for capital-raising and listings."