RMB Business Handbook

nullnullGlobal Markets Offshore Renminbi Business Info-packSeptember 2010ContentsContents*Offshore RMB market update Implications for offshore corporate Products and capabilities of HSBC Examples of RMB products structures Awards and credentials Offshore RMB Market UpdateOffshore RMB Market UpdateChronology Of Events Relating To RMB LiberalisationChronology Of Events Relating To RMB Liberalisation*Source: HSBC, Bloomberg, HKMAChronology Of Events Relating To RMB Liberalisation In 2010Chronology Of Events Relating To RMB Liberalisation In 201011 February 2010, HKMA released a circular to elucidate the supervisory principles and operational arrangement regarding RMB businesses in Hong Kong The scope of offshore RMB bonds, including the eligibility of issuers, issue arrangement and types of investors will be extended The offshore RMB bond proceeds cannot be remitted back to China but can be used outside China for purposes including trade finance and cross-border projects in Southeast Asia*Source: HSBC, Bloomberg, HKMAFebruaryLocation Of Approved RMB Trade Settlement Provinces In China Shangdong 山东Heilongjiang 黑龙江Jilin 吉林Inner Mongolia 内蒙古Liaoning 辽宁Beijing 北京Tianjin 天津Jiangsu 江苏Shanghai 上海Zhejiang 浙江Fujian 福建Guangdong 广东Guangxi 广西Yunnan 云南Sichan 四川Hubei 湖北Tibet 西藏Xinjiang 新疆Hainan 海南Chongqing 重庆*Location Of Approved RMB Trade Settlement Provinces In ChinaRMB Deposit Base In Hong KongRMB Deposit Base In Hong KongGrowth of RMB deposits based in Hong Kong depends on expectation of RMB appreciation as well as relative interest rate between that of offshore RMB and the HKD deposit rate. Driven by the increasing anticipation of RMB appreciation in near future, by the end of Jun 2010, RMB deposit base increased to over RMB89.7 billion, more than 43% growth vs. the end of 2009. Total RMB Trade settlement market surged in May 2010, reaching RMB 7,161 Mn, 140% growth vs. Apr ,2010. Source: HKMA, Bloomberg, HSBCThe Offshore RMB Market Hong Kong - Current SituationThe Offshore RMB Market Hong Kong - Current Situation*Implications For Offshore CorporateImplications For Offshore CorporateImplications For Offshore CorporateImplications For Offshore CorporateRMB Accounts Offshore Corporate can now open RMB account (s) with banks worldwide, for both trade and general purposes. Transfer of RMB funds (limited to offshore only) between different accounts are allowed without restrictions. RMB Exchange / Risk Management Offshore Corporate seeking to use RMB as a one of the currencies for their operations, foreign exchange risk management will be important. Due to the need for Participating Banks to adhere to the conditions stipulated under Clearing Agreement, a 2 tier exchange market for RMB now exists; one market rate for RMB exchange for Trade Settlement purposes and the other rate for General purposes. Offshore corporates need to be aware of this point. RMB Non-deliverable forward (NDF) and Non-deliverable option (NDO) continue to exist but Offshore RMB deliverable forward (DF) market has started to take off (same as Spot above, 2 tier market exists) albeit at modest liquidity level. Price level between NDF and DF has yet to converge. RMB Borrowing / Financing Besides the availability RMB trade financing facilities, all other type of loans in RMB are also available. Offshore corporate can also issue bonds denominated in RMB (refer next page for details). Note that the RMB proceeds obtained from all non trade financing related facilities including loans and bonds can only be remitted back for use in China when the Offshore Corporate have obtained approval from the State Administration of Foreign Exchange (SAFE).RMB Investment There is no restriction with regards to the use of the accumulated RMB funds by Offshore Corporate provided the funds are not remitted back into the Mainland. In terms of banking products, the accumulated RMB in the Offshore RMB accounts can be invested in bank deposits, RMB bonds issued offshore, FX-linked Structured deposits, Commodity-linked Structured Deposit, Equity-linked Structured Deposits and Interest Rate-linked Structured Deposits and RMB denominated funds products. *RMB Bond Market Dynamics - SummaryRMB Bond Market Dynamics - SummaryThe offshore RMB bond was part of the initiatives to develop Hong Kong as an offshore RMB financial center and has been developing gradually since 2007 HSBC was involved in 14 out of 17 transactions since 2007Products And Capabilities Of HSBCProducts And Capabilities Of HSBCSummary Of HSBC’s Product Capabilities & ExperiencesSummary Of HSBC’s Product Capabilities & ExperiencesHSBC is the largest foreign bank in China and is Hong Kong’s top bank and one of the territory’s note issuing banks*Examples Of RMB Products StructuresExamples Of RMB Products StructuresRMB Structured Products Example FX Linked Structure DepositRMB Structured Products Example FX Linked Structure Deposit*RMB Structured Products Example Interest Rate Linked DepositRMB Structured Products Example Interest Rate Linked Deposit*RMB Structured Products Example Equity Linked NoteRMB Structured Products Example Equity Linked Note*RMB Package Products Example RMB Package Products Example *Version 1 RMB deposit in HK + USD Loan + NDF + USD IRS Client pledges RMB funds obtained from Trade purposes with HSBC Hong Kong for a USD loan. The RMB funds pledged will earn a deposit rate of 2.30% for 2 years as an example HSBC grants a 2 years USD loan priced at LIBOR + credit margin, loan proceeds used by client to pay foreign supplier Client enters into an IRS to fix the interest rate of the loan as well as a USD/RMB 2Y NDF to remove the exchange rate risk On maturity, client converts RMB deposit into USD to repay the USD loan Numerical example – 2 years RMB deposit: 2.30%p.a. NDF implied RMB rate: 1.80%p.a. Less Loan credit margin: 1.00% p.a. USD IRS: 1.10% p.a. Effective return to client: 2.00% p.a.RMB Package Products Example RMB Package Products Example *Version 2 RMB deposit in China + RMB LC + USD Loan + NDF + USD IRS Client’s entity in China pledges RMB funds with HSBC China to issue RMB LC to Client in Hong Kong. The RMB funds pledged will earn a deposit rate of 2.00% for 1 years as an example HSBC HK grants a 1 years USD loan priced at LIBOR + credit margin secured by the RMB LC issued by HSBC China, loan proceeds then used by Client to pay foreign supplier Client enters into an IRS to fix the interest rate of the loan as well as a USD/RMB 1Y NDF to remove the exchange rate risk On maturity, Client’s entity in China settles RMB LC with the RMB deposit and the RMB funds received by Client will be used to repay the USD loanNumerical example – 1 years RMB deposit: 2.00%p.a. NDF implied RMB rate: 1.50%p.a. Less LC opening commission: 0.70% Loan credit margin: 1.00% p.a. USD IRS: 0.80% p.a. Effective return to client: 1.00% p.a.Awards And CredentialsAwards And CredentialsAwardsAwardsAwardCategoriesWinnerQuoteEuromoney Awards for Excellence – Global Best Global Bank, Best Global Debt House, Best Transaction Banking House “Of the few global banks to have survived without state assistance, HSBC is the best positioned in the most attractive emerging economies. Its global banking and markets business is thriving.” Best Global Bank – “The crisis showed up which banks the markets thought were safest – and HSBC came out firmly on top. One of the things that stands out at HSBC is the diversity of its business… that broad spread of business means that no single market accounts for more than a quarter of HSBC’s revenues. And it meant that HSBC was still able to make a profit for 2008 of $9.3 billion…” Best Global Debt House – “The bank has rapidly built momentum in its global franchise as debt capital markets boom” Best Transaction Banking House – “HSBC has benefited from financials’ and corporates’ desire to have contingency arrangements, while its solid balance sheet is an added attraction… HSBC has transaction banking in its DNA…” EUROMONEY, Jul 2009 *AwardsAwardsAwardCategoriesWinnerQuote “Of the few global banks to have survived without state assistance, HSBC is the best positioned in the most attractive emerging economies. Its global banking and markets business is thriving.” Best at Risk Management in Asia – “HSBC has proved itself an intelligent provider of solutions that mitigate risk, using its strong balance sheet and sound understanding of structuring to help clients cope with the downturn.” Best Debt House in Asia – “Whether it was raising large amounts of dollar debt for Australian banks through the government guarantee programme, reopening corporate bond markets or raising capital across the region's currencies, HSBC was the clear leader in Asia's debt markets” Best at Project Finance in Asia – “HSBC closed transactions with a greater total value - seven deals worth more than $5 billion - than its rival, and achieved an almost twofold increase over 2007's volume of $2.6 billion.” EUROMONEY, Jul 2009 *Euromoney Awards for Excellence - Asia Best at Risk Management in Asia, Best Debt House in Asia, Best at Project Finance in AsiaSelected Awards in Asia PacificSelected Awards in Asia PacificSource: Asiamoney, August, 2010Asiamoney FX Poll 2010 Best for Overall FX Services #1 for Financial Institutions #2 for CorporatesSource: Finance Asia, June 2010*Selected Awards in Asia PacificSelected Awards in Asia Pacific*nullDisclaimer The Global Markets division of The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) has prepared this document (the “Document”) for information purposes only. This Document does not constitute a commitment to underwrite or purchase or subscribe for all or any portion of the securities mentioned herein. Any such commitment shall be evidenced only by a fully executed subscription agreement, purchase agreement or similar contractual document. This Document should also not be construed as an offer for sale of or subscription for any investment, nor is it calculated to invite/solicit any offer to purchase or subscribe for any investment. HSBC has based this Document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability for the contents of this Document and/or as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Document. HSBC and its affiliates and/or its or their respective officers, directors and employees may have positions in any securities mentioned in this Document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and/or any of its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this Document (or in related investments), may sell them to or buy them from clients on a principal or discretionary basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. As HSBC is part of a large global financial services organisation, it or one or more of its affiliates may have certain other relationships with the parties relevant to the proposed activities as set out in this Document, and these proposed activities may give rise to a conflict of interest, which the addressee hereby acknowledges. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This Document, which is not for public circulation, must not be copied, transferred or the content disclosed to any third party and is not intended for use by any person other than the addressee or the addressee's professional advisers for the purposes of advising the addressee hereon. The Hongkong and Shanghai Banking Corporation Limited Level 16 HSBC Main Building 1 Queen’s Road Central Hong Kong SAR © Copyright. The Hongkong and Shanghai Banking Corporation Limited 2010, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited. (August 2010)