However, some observers said that it was unlikely to make Hong Kong a yuan-denominated offshore debt market by launching such deals.

HSBC and Bank of China (Hong Kong) have been hired to arrange the deals, which could come before the end of the first half, sources said.

"There's a lot of moving parts and a number of things that still have to be dealt with," one source said.

Outstanding issues include whether the Hong Kong Monetary Authority will require the bonds to carry a rating and, if so, who will rate them.

The choice includes big international agencies such as Standard & Poor's and Moody's Investors Service, or local houses, which include China Chengxin International Credit Rating and Dagong Global Credit Rating.

Another issue is that most yuan-denominated accounts in Hong Kong are individual savings accounts instead of institutional investor holdings, and the People's Bank of China has given no guidance on what kind of investors will be allowed to buy the bonds.

The State Council said in January that mainland financial institutions would be allowed to sell yuan bonds in Hong Kong. The HKMA said in February that its real-time gross settlement system for such bonds was operational.

Hong Kong government and mainland officials have touted the benefits of an offshore yuan bond market in the territory. They said the development of such a market would reinforce Hong Kong's standing as a financial centre and force international levels of transparency on mainland bond sellers.

The fact remains that for China's state-owned banks such as the Export-Import Bank and China Development Bank, selling bonds in China's interbank market at 3 per cent to 3.5 per cent for three-year bonds, will remain the cheapest route to raising funds.

Beyond state-owned banks and a few of the largest state-owned companies that would likely be induced by Beijing to follow, the number of mainland companies willing to sell yuan bonds in Hong Kong would be small, analysts said.

"From a monetary and practical perspective any Chinese company can easily borrow from banks or domestic debt capital markets, which is flooded with liquidity," said Larry Lee, managing director of Fitch Ratings' mainland China operations.

"The regulatory requirements, the documentation that includes accounting and legal opinions, will all be more expensive in Hong Kong."

The small amount of yuan-denominated deposits in Hong Kong banks, about 23 billion yuan at the end of last year, does not hold much incentive for mainland companies, compared to the trillions of yuan-denominated debt circulating in the mainland.

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