King & Wood Mallesons (KWM) advised the World Bank on its first Special Drawing Rights (SDR) – denominated bond in the Chinese Inter-Bank Bond Market.
The bonds in an aggregate principal amount of 500 million SDRs were priced on 31 August 2016 and issued on 2 September 2016, achieving a landmark development for China’s bond market and for the SDR as an international reserve asset.
The transaction expands the use of SDRs and helps promote the development of China’s domestic capital market and further demonstrates the internationalization of the Renminbi. It also demonstrates the active participation of onshore and offshore investors in the Chinese Inter-Bank Bond Market.
KWM’s cross border-team was led by Partners Richard Mazzochi and Minny Siu in Hong Kong and Christine Chen in Beijing.
The transaction involved many firsts, including:
- publication by China Foreign Exchange Trading System (CFETS) of the reference rates for new currency pairs and CFETS acting as a calculation agent;
- facilitating central bookbuilding for the SDR Bonds in the Beijing Financial Assets Exchange and the custody and clearing of the SDR Bonds in the Shanghai Clearing House;
- hedging the payments due under the SDR Bonds; and
- active participation by offshore investors in subscriptions for the SDR Bonds in the Inter-Bank Bond Market.
The transaction was announced as the International Monetary Fund is scheduled to officially include the yuan as the fifth global reserve currency in its SDR basket in October which will further promote the development of SDR-denominated financial instruments.
Lead Partner Richard Mazzochi said: “We are thrilled to have supported the World Bank on this momentous bond issue. We see the issuance of these bonds as a significant step in the ever-growing use of Renminbi, the internationalisation of the Inter-Bank Bond Market and the recognition of the importance of China’s market to issuers from across the world.”
Leveraging the firm’s local depth in China and global platform, the KWM team has been at the forefront of the internationalization of China’s bond market from the very first panda bond issuance by International Finance Corporation in 2005.
In January 2016, KWM assisted the Province of British Columbia (BC), Canada on its issue of RMB 3 billion bonds in the Inter-Bank Bond Market. KWM also advised the underwriters on the RMB 3 billion bond issuance by the Republic of South Korea in December 2015.