The Financial Supervisory Commission (FSC) yesterday gave the green light for Chinese enterprises to issue yuan-denominated bonds in Taiwan in yet another attempt to boost the bond market and underwriting business for local financial institutions.
Starting today, large state-owned Chinese banks, commercial lenders and their overseas branches may start to issue Formosa bonds after gaining approval from the GRETAI Securities Market (GTSM), the commission said.
China-based subsidiaries of Taiwanese financial institutions and affiliates of locally listed companies are also qualified to issue Formosa bonds, it said.
“The opening will help expand the Formosa bond market and digest yuan deposits,” as Taiwan is seeking to develop into a regional offshore yuan hub after Hong Kong, the regulator said in a statement.
Taiwan started allowing banks to take in yuan deposits in February, and as of the end of last month, total deposits reached 123.25 billion yuan (US$20.23 billion), as the yuan’s higher yield encouraged many to switch their local-currency savings to yuan.
Opening the market to yuan-denominated bonds should also increase local securities companies’ underwriting revenue and led to the training of experts in yuan-linked financial products, the commission said.
Earlier, GTSM set a goal of issuing 10 batches of Formosa bonds worth 10 billion yuan this year. As of the end of September, Taiwan has issued five batches of Formosa bonds with a total value of 3.9 billion yuan.
The Australia and New Zealand Banking Group (ANZ) hailed the latest regulatory relaxation as a major breakthrough because Chinese firms are the main users of its home currency.
“It is important for Taiwan to tap into these segments because they are the main driver of the offshore yuan market,” ANZ senior economist Raymond Yeung (楊宇霆) said in Taipei.
In Hong Kong’s Dim Sum market, Chinese corporate and financial institutions represent 68 percent and 50 percent of the issuance in their respective segments last year, Yeung said.
To boost Taiwan’s Formosa bond market, China Development Bank (國家開發銀行) had expressed its intention to issue Formosa bonds sized at 5 billion yuan, ANZ said, citing media reports.
Given improved cross-strait relations, China’s policy banks will start to issue Formosa bonds to help set a benchmark for the local market to follow, Yeung said.
The Formosa bond market will primarily serve Taiwan’s domestic investors, while Hong Kong’s Dim Sum market and the Singaporean market will cater to global investors because of their sophisticated infrastructure, ANZ said.
Separately, the FSC announced plans to scrap the stock face value limit, currently set at NT$10, to encourage primary listing.
Commission Chairman William Tseng (曾銘宗) last month briefed lawmakers about the planned change aimed at giving companies more room to raise funds through the local capital market.
The face-value easing would end the current dual-track regulations, as foreign companies listed on the local bourse are not subject to the requirement, Tseng said.
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