Euroclear links Chinese firms with global capital via Yulan bonds

<div class=”rich-text”>
<h3>(ATF) Brussels-based Euroclear, one of the world’s biggest securities depositories, said this week it has helped create a new asset class in China – the so-called Yulan bond – aimed at linking Chinese issuers seamlessly with global investors.</h3><p>Yulan bonds – named after Shanghai’s city flower, the magnolia, and denominated mainly in US dollars and euros – will be issued through Shanghai Clearing House, a Chinese interbank bond market facility. </p><p>The first issuance is expected within months, a Euroclear spokesman said.</p><p>International investors in Yulan bonds will settle the securities within Euroclear’s network, freeing them from the need to understand the Chinese settlement system.</p><p>Hotel group Jinjiang International and the state-owned industrial park operator Lingang Group both have expressed interest in issuing Yulan bonds, according to the Chinese state-run Xinhua news agency.</p><p>Valerie Urbain, CEO of Euroclear Bank, said both Chinese issuers and global investors stood to benefit from the new bonds, which were the culmination of nearly a decade of collaboration between Euroclear and Shanghai Clearing House.</p><p>For mid-sized Chinese companies with little experience in global markets, Yulan bonds offer “much wider access to an international investor base, and … a lower cost of borrowing,” Urbain told Reuters in an interview.</p><p><figure><div><picture class=”responsive-media” style=”padding-bottom: 50.0%;”><source data-srcset=”https://cdn.spark.app/media/atf/image/valerie_urbain_euroclear_pic_w720.webp 1.0x” type=”image/webp”></source><source data-srcset=”https://cdn.spark.app/media/atf/image/valerie_urbain_euroclear_pic_w720.jpg 1.0x” type=”image/jpeg”></source><img data-src=”https://cdn.spark.app/media/atf/image/valerie_urbain_euroclear_pic_w720.jpg” alt=””><noscript><img src=”https://cdn.spark.app/media/atf/image/valerie_urbain_euroclear_pic_w720.jpg” alt=””></noscript></picture></div></figure><em>Valerie Urbain (Euroclear pic).</em> </p><p>China’s latest effort to open up its capital markets comes as outgoing US President Donald Trump ramps up moves to isolate China from the global financial system. </p><p>Last week, global index publisher FTSE Russell said it will delete the shares of eight Chinese companies from certain products after a US order restricting their purchase.</p><p>Yulan bonds also come amid fresh concerns over the health of China’s corporate bond market following a series of high-profile defaults.</p><p>Urbain said these events would not change Euroclear’s role of facilitating cross-border investment between China and international markets.</p><p>Investors “have a duty to understand the risk that they are taking, not only from a credit perspective but also from a regulatory perspective,” Urbain said.</p><p>Urbain expects interest in Yulan bonds to grow rapidly, but said it was hard to predict the market’s potential size.</p><h3>730 dollar-denominated bonds this year</h3><p>Cross-border bond issuance by Chinese companies has been on the rise in the last few years. Chinese companies have issued 730 US dollar-denominated bonds overseas this year with a total issue size of $352.7 billion, up 19% from last year, according to Wind data.</p><p>Xie Zhong, chairman of Shanghai Clearing House, said in a statement that both parties will continue to explore new ways to facilitate cross-border investment.</p><p>Last September, Euroclear signed a memorandum of understanding with market infrastructure provider China Central Depository &amp; Clearing Co to open a link for easier foreign access to Chinese bonds, aiming to allow the use of yuan-denominated bonds as collateral globally.</p><p>Urbain declined to disclose when that link will be launched, saying only that it remains a “work in progress.”</p><p><em>With reporting by Samuel Shen and Andrew Galbraith.</em></p>
</div>