The Export-Import Bank of China, one of the mainland's three policy banks, will start issuing 2 billion yuan-denominated bonds in Hong Kong from today, making it the second offshore yuan bond issuer after China Development Bank (CDB).

The yuan bonds will be issued to both institutional and individual investors, each at 1 billion yuan, and are expected to attract huge demand following the success of CDB's 5 billion yuan bond issue in the city last month.

The duration of the bonds for individual investors is two years, with a 3.05 percent yield, 0.05 percent higher than the bonds of China Development Bank. The bonds for institutional investors will have a duration of three years.

Minimum subscription for individuals will be 10,000 yuan and the sale period will end on August 20.

The CDB's successful issue that drew more than 14 billion yuan in subscriptions, boosted the yuan deposit accounts in Hong Kong banks as only the city residents with yuan deposit accounts at banks in Hong Kong can buy yuan bonds.

Banking on the further appreciation of yuan, deposits account of yuan rose sharply 5.6 percent in June to 27.6 billion yuan by the end of June, as more accounts were opened ahead of China Development Bank's bond, according to the Hong Kong Monetary Authority, the city's banking regulator.

The mainland gave earlier this year the green light to mainland financial institutions to issue yuan bonds in Hong Kong, highlighting the city's role as a testing field for gradual liberalization of yuan currency.

China Construction Bank and dual-listed Bank of China are expected to issue such bonds in Hong Kong in the fourth quarter this year.

While allowing mainland lenders to issue yuan bond overseas, the mainland's currency regulator will allow more overseas institutions to sell yuan bonds on the mainland.

"We will allow more foreign institutions to issue yuan bonds on the mainland and expand the utilization of the proceeds. We will allow them to use the yuan proceeds to buy foreign exchange and then remit them out of the mainland," Deng Xianhong, vice-head of the State Administration of Foreign Exchange said yesterday.

The government had already permitted two international financial institutions - the Asian Development Bank and the International Finance Corp - to sell yuan bonds on the mainland.

(HK Edition 08/10/2007 page6)