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Global issuers flock to dim sum bonds, repatriation of funds a worry - RBS

Thursday, 4 Oct 2012 | 5:41 AM ET

HONG KONG, Oct 4 (Reuters) - Strong growth in the offshore yuan bond market is luring more global issuers to tap the nascent market, yet Beijing's tight grip over the repatriation of proceeds to mainland China remains a key concern, Royal Bank of Scotland said on Thursday.

The world's second-largest economy has stepped up efforts to open its capital account and internationalise the yuan currency, although it still carefully monitors cross-border fund flows under the capital account by imposing quotas.

"Whenever I travel and talk with corporate clients overseas, (I find) there is no lack of interest in this market and it's only a lack of quotas," said Augusto King, Asian head of debt capital markets at RBS.

"What happens to a lot of the multi-national corporates over the year is that they have used up the bulk of SAFE quotas," he said, referring to the State Administration of Foreign Exchange.

There are no restrictions on domestic and foreign companies issuing yuan bonds in the offshore market. However, when it comes to remitting money back to China, each company must secure approval as the yuan proceeds are treated like any foreign debt.

King said the investor base in the dim sum bond market was more diversified in terms of where they came from and the type of investor involved.

In terms of region, more investors from Singapore and Europe had started to take part in the market, besides Hong Kong.

As for investor type, King saw growing interest from insurance companies, especially from Taiwan, as more long-term yuan bonds are now available. Hedge funds, which bet on yuan appreciation, were less active this year.

A total of 108.6 billion yuan ($17.3 billion) of dim sum bonds have been issued is so far this year, and foreign companies have taken a big part of the pie during the past few months, according to Thomson Reuters statistics.

For a factbox on recent issuances of dim sum bonds, see .

China is planning to make the yuan basically convertible as early as 2015 and, further down the road, turn it into a global currency on par with the U.S. dollar.

(Reporting by Michelle Chen; Editing by Kim Coghill)

((michelle.chen@thomsonreuters.com)(+852 2843 6587)(Reuters Messaging: min.chen.thomsonreuters.com@reuters.net))

Keywords: MARKETS OFFSHORE/YUAN