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African central banks invest in offshore Chinese bonds

African central banks have invested in offshore Chinese bonds.

The Standard Bank Group acted as sole bookrunner for the latest placement of China Development Bank’s (CDB) RMB500-million worth of three-year offshore renminbi bonds to African central banks.

This was the first time that African central banks have participated in an offshore renminbi bond investment in primary markets.

“This landmark bond sale to Africa was a tranche of CDB’s recent RMB2.5-billion bond offering, in which Standard Bank Group was one of the seven joint bookrunners and lead managers, Standard Bank said August 6, 2012.

China Development Bank issued three-year and 20-year offshore renminbi-denominated bonds in Hong Kong (the so-called dim sum bond), with participation from Asian and non-Asian investors.

About 60% of the total dim sum bonds were allocated to European, Middle East and African investors, and Standard Bank says its allocation, which was placed with African investors, accounted for one fifth of the total bonds CDB issued, and was the highest amongst all the bookrunners and lead managers.

The Managing Director at the Bank’s China unit, Mr Bing Fan stated that the allocation to African central banks is a reflection of the latest trend in the currency reserve strategies of some African nations, which have started to include the renminbi into their foreign exchange reserve portfolios.

Jeremy Stevens, a Standard Bank Group economist based in Beijing added that “The internationalisation of the renminbi is inevitable, and Africa is a fertile soil and important front for this process, with RMB36-billion in trade done in the Chinese currency already during 2011.”

Stevens urged Africa to use Beijing’s desire to broaden the geographical reach and use of the renminbi to reinforce its relevance.

“The internationalisation of the Chinese currency will lower transaction costs, enable better working capital and improve risk management practices, which along with various incentives, will support trade flows. Investment will find support through cheaper sources of funding, which is raised in Hong Kong or through loans, and better-protected capital with hedging instruments. This will result in more favourable terms for African projects,” Mr Stevens said.

The Standard Bank indicated that it is committed to promoting renminbi internationalisation by expanding and encouraging the use of the currency in trade settlement between China and Africa.

By Ekow Quandzie

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