HSBC to raise money in Chinese currency in London

HSBC is to raise money in London in the Chinese currency, becoming the first business to issue a benchmark bond outside mainland China or Hong Kong.

Chancellor George Osborne has said it is a step towards London being the top Western trading hub in the yuan, also called the renminbi.

HSBC said it would be raising more than 1bn yuan (£100m) with its three-year bond.

China is taking steps to make the yuan a global, convertible currency.

The three-year bond is being referred to in the markets as a Dim Sum bond, which was previously the term used for yuan-denominated bonds issued in Hong Kong, and be listed on the London Stock Exchange.

It comes after China over the weekend loosened its currency controls in a move that may spur gains in the value of the yuan.

From Monday, the yuan is able to fluctuate up to 1% in trading against the US dollar from a fixed price set by the central bank, the People's Bank of China said.

Treasury Secretary Timothy Geithner on Wednesday described China's decision as "very significant".

"They are on the right path," he said. "They are planning to still move further. I think they recognise they have to go further."

'Exciting'

HSBC currency strategist David Bloom told the BBC that it was "a very exciting event" for the City as a trading centre.

It also signalled the emergence of the yuan as an internationally important currency, he said.

"There is something very exciting happening outside the European crisis that we have been living through and that is the Chinese opening up their economy."

HSBC said that while the London bond was the first internationally-recognised bond outside mainland China and Hong Kong, HSBC Middle East had issued a yuan bond in Dubai earlier in the year.

The bond issue in London is possible because of agreements between the British and Chinese governments in 2011.

Mr Osborne said: "Let me be clear: London is not in competition with Hong Kong, it is a complement, providing a Western hub for renminbi business."

There were yuan deposits worth more than 109bn in London at the end of 2011, according to figures provided by the Treasury.

There has been some surprise among investors that HSBC has chosen to raise the money for itself rather than for a client, as the bank would be able to raise it considerably more cheaply through other avenues such as inter-bank borrowing.

But according to Mr Bloom: "HSBC want it and they want it bad. China is opening financial services to the world and the question is do you want to be part of it or not? And the answer is yes we do".