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Flying Dutchman

China To Sell Cyn6b Yaun Sovereign Bonds In Hk.

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SHANGHAI (Dow Jones)--In the latest move to internationalize its currency, China unveiled a plan Tuesday to sell yuan-denominated government bonds in Hong Kong, the first offering of yuan sovereign debt outside mainland China.

The Ministry of Finance said it will issue CNY6 billion (US$878.5 million) worth of bonds in Hong Kong Sept. 28 to develop the city's nascent yuan-denominated bond market and promote the yuan's global status.

The move follows other steps taken by Beijing in recent months, such as allowing the yuan to be used to settle cross-border trade, that are aimed at eventually making the yuan a major international reserve currency.

The MOF said in a statement the bonds would be sold to institutional and retail investors in Hong Kong, and would buttress the city's position as a global financial center.

It didn't disclose the maturities or coupons of the bonds.

"This could probably be seen as part of China's multi-prong effort to increase the international role of the yuan," said Standard & Poor's sovereign analyst Tan Kim-Eng.

The move shows Beijing is stepping up its efforts to make the yuan fully convertible and to increase capital mobility in and out of the country, Tan said.

At present, the yuan is fully convertible under the current account, but not under the capital account.

If the maiden issue of yuan-denominated government bonds in Hong Kong is successful, the Chinese government will feel more comfortable exposing its currency further, said Vincent Ho, associate director of Asia Sovereign Ratings at Fitch Ratings.

"Hong Kong is an international financial platform while it's also under Chinese rule, so if the Chinese government finds any problem in execution in the meantime, it's easier for it to control or fix," he said.

The trial sale of yuan-denominated sovereign bonds in Hong Kong could also help promote the special administrative region's fledgling yuan bond market, analysts said.

The sale could offer a safe investment for Hong Kong investors given the yuan's rising status and the positive outlook for the Chinese economy, said DBS economist Chris Leung.

Hong Kong's yuan-denominated bond market began in 2007 with policy lender China Development Bank's sale of CNY5 billion worth of bonds. In total, seven Chinese banks, including China Development Bank, and two foreign lenders - HSBC Holdings PLC (HBC) and Bank of East Asia Ltd. (0023.HK) - have issued a total of CNY27 billion worth of yuan-denominated bonds in Hong Kong.

-Wang Ming and Terence Poon contributed to this article, Dow Jones Newswires; 8621 6120-1200; ming.wang@dowjones.com

(Chester Yung and Aries Poon in Hong Kong also contributed to this article.)

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=oK...oC7i9GlFA%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

September 08, 2009 01:48 ET (05:48 GMT)

The BRIC's are organising themselves nicely, gently does it though.

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