First offshore renminbi swaption accomplished in Hong Kong

The first offshore renminbi OTC swap option was carried out this week between BNP Paribas and HSBC in Hong Kong, brokered by Icap.

The first over-the-counter offshore renminbi (CNH) swaption trade was conducted this week in Hong Kong between BNP Paribas and HSBC, representing another important step in the development of the newly tradable offshore delivered Chinese renminbi market.

The notional value of the BNP Paribas/HSBC swaption contract, brokered by Icap, was 50 million renminbi ($7.5 million). It was a one-year European swaption.

Pierre Themiot, head of interest rate group options for Asia ex-Japan at BNP Paribas in Hong Kong, said the deal reflected part of the French bank's ambition to get involved in the every stage of renminbi internationalisation.

The transaction was done despite a lack of clarity around a number of areas, particularly floating rate references and business day conventions. "At the moment, the market and Isda conventions and definitions are still being discussed both for securitisation and derivatives," said Hugh Gallagher, Icap's Sydney-based chief executive for the Asia-Pacific region.

"However, as liquidity and understanding develops, we expect the CNH options market to grow into a mainstream hedging instrument for all market participants," said Gallagher. "We will continue to be active in ensuring we contribute to the growth and use of CNH products for the wider market." CNH is used as a symbol to identify offshore renminbi.

Gordon French, head of global markets, Asia Pacific, at HSBC in Hong Kong, said the bank will continue its efforts to develop the renminbi interest rate derivatives market and broaden the product range for offshore instruments as this will assist in providing customers with risk management, investment and hedging solutions.

HSBC traded the first offshore renmimbi deliverable Shanghai interbank offered rate (Shibor) interest rate swap in October.

Separately, China's Ministry of Finance (MoF) and the Hong Kong Monetary Authority (HKMA) on November 22 signed a memorandum of co-operation to use the Central Moneymarkets Unit (CMU) to issue renminbi sovereign bonds in Hong Kong.

The MoF issued 5 billion renminbi of sovereign bonds to institutional investors through the CMU. This comprised 2 billion renminbi of three-year bonds, 2 billion renminbi of five-year bonds and 1 billion renminbi of 10-year bonds. The MoF appointed the Bank of Communications Hong Kong branch as issuing and lodging agent responsible for matters relating to the tendering of the renminbi sovereign bonds. CMU is a bond-tendering platform offered by the HKMA.

The Asian Development Bank raised 1.2 billion renminbi via a 10-year issue in Hong Kong in October (see: ADB prices first offshore supranational renminbi bond in Hong Kong). It was the first denominated in renminbi offshore supranational bond. It followed a bond issue by McDonald's in August.