2 | K A N G A N E W S D E C 1 4 / J A N 1 5

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AOFM on sidelines of RMBS market as demand grows

International structured-finance investors speaking at the Australian Securitisation Forum’s annual

conference, held in Sydney on November 10 and 11 2014, said they would “love to buy” RMBS paper held by the AOFM the secondary market. Global buyers of securitised paper may be forced to spread the net in looking for assets to fill their portfolios after the European Central Bank initiated a buying programme for RMBS, asset-backed securities and covered bonds.

In the past, the AOFM has been able to sell notes from its RMBS portfolio in order to meet specific demand and to aid market transparency. The most recent direction the government debt-management agency has on RMBS was made by former federal treasurer, Wayne Swan, in 2013.

This direction reads, in part: “Where a sale of [RMBS] held by the AOFM can occur at a price the AOFM considers acceptable and continues to support market recovery, the AOFM is empowered to undertake such a sale.”

However, the AOFM’s hands are currently tied – even if it wanted to sell some of its remaining RMBS as the apparent demand for the securities

suggests it might be. A Macquarie Bank (Macquarie) analyst note from July 2014 says any sales from the AOFM are “on hold” pending a direction from the new treasurer.

Swan’s direction was issued under section 62A of the Financial Management and Accountability (FMA) Act of 1997. However, this act was repealed in June 2014 and replaced by the Public Governance, Performance and Accountability (PGPA) Act. The Macquarie report points out that, as a

result, “directions issued under section 62A of the FMA act are no longer in force and new directions may need to be issued to allow sales to proceed”.

The amendment to the PGPA act came into force on July 1 2014, and the AOFM has not sold any of its RMBS investments since June. Market sources tell KangaNews the change in legal governance leaves the AOFM effectively in a vacuum with regard to its RMBS portfolio until a new direction is issued.

Past salesPast AOFM sales of RMBS have been significant, but have not amounted to a wholesale sell-down of the portfolio. For instance, in the first quarter of 2014 the

AOFM sold more than A$359 million (US$302.9 million) of the AB tranches of its RMBS holdings in two visits to the market. It subsequently conducted the sale of four tranches of A notes with an aggregate amortised face value of A$338 million, in June, at traded margins between 75 and 95 basis points over bank bills.

The AB note sales, like previous divestments, were conducted in part to demonstrate significant price tightening in the asset class – driven, but also with visibility limited, by scarcity of supply. In March, the AOFM confirmed that its remaining AB note was expected to be called in April, at which point the sovereign debt agency would no longer own any mezzanine RMBS paper.

According to the AOFM’s annual report, the book value of its remaining RMBS holdings was A$6.0 billion at the end of 2013-14, having been A$9.1 billion at the end of the 2012-13 financial year.

AOFM’s positionThe AOFM itself acknowledges its continued active position in the RMBS market. Its Canberra-based director of financial risk, Michael Bath, notes: “We have sold RMBS from time to time to help with price discovery. The last time we did so was in June this year.”

The Macquarie analyst report says clarity on prospective actions would be very useful. “To date, AOFM actions have been carefully choreographed in order to derive maximum liquidity and pricing benefits – for both the AOFM and the market more broadly. Putting the sale programme on hold puts some uncertainty back into markets, eliminates a source of ‘neutral’ secondary-market price discovery, removes the opportunity for the AOFM to capitalise on market gains… and [reduces the] AOFM’s balance-sheet risks.”

However, Bath argues that in the current environment divestment purely to aid price discovery would appear less necessary. “The market seems to be working fine just at the moment without us putting our bib in,” he says. •

“WE HAVE SOLD RMBS FROM TIME TO TIME TO HELP WITH PRICE DISCOVERY. THE LAST TIME WE DID SO WAS IN JUNE THIS YEAR... THE MARKET SEEMS TO BE WORKING FINE JUST AT THE MOMENT WITHOUT US PUTTING OUR BIB IN.”MICHAEL BATH AUSTRALIAN OFFICE OF FINANCIAL MANAGEMENT

The repeal of the legislation underpinning the official direction given to the Australian Office of Financial Management (AOFM) by government leaves the debt-management agency unable to conduct transactions in its residential mortgage-backed securities (RMBS) portfolio – despite apparent demand from third-party investors.

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use of niche currencies in its overall term-funding portfolio – noting that “every incremental investor supports the diversification of our investor base”.

It was not just the buyer base where NAB sought to differentiate, either. Zileli also notes that for the green bond the bank wanted to access a different part of the curve from where it issues the bulk of its senior-unsecured paper, and settled on seven years as the best meeting point of issuer preference and demand.

The bond’s proceeds will be used to support NAB project finance in the renewable-energy sector. Zileli says sustainability is a key element of the bank’s project-finance strategy. It is a large financier of renewable energy in Australia and, with funding tied into developments in this arena, NAB hopes to become a more frequent green-bond issuer over time.

The 17 specific projects being funded by the NAB green bond include solar and wind-energy assets – which would seem to have little ambiguity in terms of their green credentials. However, NAB was still keen to ensure investors could be absolutely confident around the use of proceeds. As such, it employed an independent evaluator to verify compliance with international climate-bond standards. •

Domestic capacity growth makes NAB’s green-bond debut possible

NAB priced A$300 million (US$251.4 million) of seven-year green bonds on December

4 2014, at a margin of 100 basis points over mid-swap. The only previous green-bond transaction in the Australian market is a Kangaroo from World Bank, which priced in April 2014 with five-year tenor and also at volume of A$300 million.

As with the World Bank green Kangaroo, neither issuer nor investors appear to have had to make pricing concessions on the NAB deal. Eva Zileli, head of group funding at NAB in Melbourne, tells KangaNews: “Pricing was in line with our senior curve – this was a requirement for us, and we feel it was definitely achieved.”

NAB’s most recent senior benchmark issue prior to the green bond came on November 10, when it issued A$600 million of five-year floating-rate notes at 85 basis points over bank bill swap rate. It has not issued seven-year paper domestically since 2011, though it priced a small, fixed-rate 10-year deal in June 2014, at 100 basis points over swap.

The Australian market for green bonds has only recently reached the stage where it has the scale to successfully accommodate benchmark transactions. World Bank’s A$300 million included a A$100 million cornerstone from local superannuation fund UniSuper. Its book was otherwise built on a combination of demand from socially responsible investment (SRI) funds, local real-money investors with broader sustainability criteria and – for around a quarter of the book – international buyers.

The first two of these groups were critical for NAB. The bank was keen to bring its first green bond in the domestic market, which meant a longer lead time than might have been the case if it had elected to issue in the more developed offshore arena. Zileli says NAB was working on the transaction for many months ahead of issue, and while the process included a devotion of resources to preparing the product this was far from the only relevant factor.

“It wasn’t just a matter of putting the deal together, but also finding demand,” she reveals. “The domestic investor base has evolved since we started looking at a transaction. I don’t think we could have done a deal as large as this a year ago, and I think in a year’s time the market will have grown further.”

Investor diversityLike World Bank, NAB was able to attract a range of different investors by offering green product. As well as notable participation from specialist SRI funds, Zileli says the deal saw a higher proportion of real-money takeup than is typically found in the bank’s senior curve. The NAB deal was primarily distributed within Australia.

In terms of its diversification impact, Zileli compares the green bond to NAB’s

“THE DOMESTIC INVESTOR BASE HAS EVOLVED SINCE WE STARTED LOOKING AT A TRANSACTION. I DON’T THINK WE COULD HAVE DONE A DEAL AS LARGE AS THIS A YEAR AGO, AND I THINK IN A YEAR’S TIME THE MARKET WILL HAVE GROWN FURTHER.”EVA ZILELI NATIONAL AUSTRALIA BANK

The development of demand for green assets by Australian real-money funds allowed National Australia Bank (NAB) to achieve its goal of debuting as a green-bond issuer in the domestic market. As with Australia’s only previous green-bond deal, NAB secured investor diversity in its book and pricing in line with its outstanding, non-green bonds.

4 | K A N G A N E W S D E C 1 4 / J A N 1 5

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Securitisation reform in Australia still a work in progress for APRA

Littrell told the Australian Securitisation Forum (ASF)’s annual conference in Sydney

on November 11 2014 that APRA is “proceeding somewhat more slowly than usual”, for various reasons. Implementation is now expected in 2016 – a delay of a further year.

First, “and most pragmatically”, Littrell said there is “rather a lot on a bank regulator’s plate at the moment”. Included in his remarks was the acknowledgement that, even though the Basel III reforms are largely in place, several more initiatives are likely “in the near future”, including the possibility of a global securitisation framework. Littrell also pointed to Australia’s financial system inquiry – of which he said APRA was waiting for the outcome relating to securitisation.

Third, Littrell repeated APRA’s previously stated concerns around securitisation in general: that it is a somewhat complicated proposition and the regulator is not simply following a well-established global standard. “It behoves both APRA and the industry to take our time and get this reform right,” Littrell added.

Simple structuresAPRA remains comfortable with the idea of a large, useful, and safe Australian securitisation market, Littrell asserted, in comments effectively repeated from the previous year’s ASF conference speech. As he said in 2013, Littrell noted that it is APRA’s intent to facilitate a capital-relief securitisation market and “a simpler and safer prudential framework than has evolved internationally”.

APRA intends to achieve this via a framework which adopts the simplest

possible workable structure. Littrell added: “Given securitisation necessarily needs some complexity and perhaps some regulatory flexibility, we propose to provide enough to allow a large market to grow but without the excesses that existed pre-crisis.”

A key outcome which many securitisation market participants have been awaiting from the revised APS 120 is the introduction of a master-trust regime for Australian borrowers. In its discussion paper, APRA indicated it would consider master trusts for funding-only securitisations.

The response from industry to APRA’s APS 120 discussion paper unsurprisingly urged the regulator to allow originators to optimise master trusts on behalf of investors “as this maximises the potential issuance volume and reduces the issuer cost”, Littrell told the ASF conference.

He also acknowledged that balancing APRA’s and the industry’s desire to promote master trusts as the basis for a much larger securitisation market is probably “the trickiest policy question remaining”.

When Littrell addressed the ASF conference in 2013 he said there were two unresolved issues for APRA around master trusts. One may be moving towards conclusion, Littrell now suggests, with the resolution to the treatment of seller interests being that seller-contributed or retained assets in the vehicle must rank at least pari passu with the most senior investor class in the vehicle.

However, Littrell said the date-based call issue remains more difficult and admits that APRA has not yet determined its final position thereon. The main

difficulty, Littrell revealed, is that “the contractual structure does not match market reality for bullets, even of the allegedly ‘soft’ variety”.

In other words, if APRA allows master trusts to issue third-party paper with a heavily signalled maturity date sufficient to allow it to be included in bond indices, there will be a firm market expectation that the instruments will be paid on this date.

Skin in the gameAPRA’s proposed approach to credit risk retention is “simple”, Littrell insisted, although by suggestion he positioned the Australian regulator as being far more conservative than some of its global peers. He said: “It is certain that the US and European skin-in-the-game rules will differ from APRA’s proposed approach, and are likely less conservative. But this is not an argument for APRA to adopt weaker rules on skin in the game.”

APRA’s approach contains three main pillars. In funding-only terms, the originator would hold all the subordinated instruments and all the capital requirements. For capital-relief transactions the originator should never reduce below 20 per cent risk and capital, for skin in the game purposes. Meanwhile, the regulatory capital relief ties to the least-sold subordinated tranche.

“APRA is inclined towards a reformed securitisation framework that should set the simplest workable rule, and resist any move towards additional complexity,” Littrell said. “In this context ‘simple’ usually equates to ‘conservative’, and this is likely to best serve the diverse interests of the banking sector, the securitisation industry and, importantly, end investors.” •

The regulatory future of securitisation in Australia continues to be a work in progress after Charles Littrell, executive general manager at the Australian Prudential Regulation Authority (APRA), said he expects to make “at least one” and “probably two more” annual speeches on this round of securitisation reform.

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Market opinion divided following S&P finalisation of new LMI methodologyMarket participant opinion is divided over whether uncertainty around lenders’ mortgage insurance (LMI) rating methodology in residential mortgage-backed securities (RMBS) is resolved by the publication of Standard and Poor’s Ratings Services (S&P)’s final criteria.

Some expect an earlier shift in ratings preference which saw S&P excluded from a clutch of deals to

continue. The historical norm in Australia has been for external RMBS to be rated by S&P and at least one other agency.

On December 8, S&P revealed new criteria for assessing LMI as a form of credit enhancement in structured and public-sector finance and covered bonds, effective from February 2 2015. The publication concludes a request for comment (RFC) period which S&P opened on August 19.

According to KangaNews data, S&P did not rate four prime Australian RMBS deals between September and December 2014, having rated every other such transaction since 2011. Intermediaries pointed out there was a small delay in RMBS flow around the time S&P came out with its RFC, while issuers switched ratings preferences and slowed the process of some deals coming to market.

New methodologyThere are two major changes between S&P’s RFC and its final criteria. The first falls under “cancellable policy”, where S&P will assess whether credit support is sufficient to cover potential losses after applying a 50 per cent haircut to the mortgage insurance coverage amount

for cancellable policies based on two possible outcomes. The second is “rating differentiation for assumed claims-adjustment rates”, which is intended to simplify application and differentiate among claims adjustments by rating categories.

S&P says it expects the ratings impact following the finalisation of the new criteria to be concentrated in Australia, where 100 per cent LMI is often a material form of credit enhancement in rated RMBS. “We expect the rating impact to be mainly driven by the changes to

claims-adjustment assessment and to predominately affect the subordinated tranches in Australian RMBS, for which LMI is in many cases the only source of hard credit support.”

The report adds: “Yield and cash-flow analysis will determine the magnitude of any rating change on these tranches. The potential rating impact reflects the application of the criteria and other support available to the affected rated securities.”

One day after the revised methodology was published, S&P lowered the ratings it ascribes to 61 tranches of Australian and New Zealand RMBS, while simultaneously affirming those on an additional 82 tranches. These actions are a consequence of

S&P lowering the rating it assigns to Genworth Financial Mortgage Insurance, which provides loans in the RMBS pools with LMI, an S&P report states.

The 61 downgraded tranches are believed to have insufficient credit support proportionate to previous ratings. “After giving credit to the LMI provided by current insurers and any additional support mechanisms, we believe the credit support available is insufficient to cover losses sized above the subordination provided at the previous rating levels,” the report adds.

Most of the affected tranches are subordinated notes, for which the ratings are directly supported by the LMI provider. The unaffected tranches, for which Genworth is a supporting counterparty have the benefit of credit support provided by subordination along with other supporting mechanisms, S&P notes.

Market feedbackMarket participants insist the final published methodology is not too dissimilar to the RFC proposal. While they say it removes some level of uncertainty, some believe more clarification is needed. Any optimism that the situation might easily be resolved once the S&P process was complete appears to have faded.

“THERE ARE SOME QUALITATIVE ELEMENTS TO THIS PROCESS WHICH MEAN THAT SOME UNCERTAINTY WILL PERSIST. THEREFORE, I THINK THE BIAS AWAY FROM S&P IN POTENTIALLY AFFECTED TRANCHES WILL REMAIN FOR SOME TIME.”RICHARD LOVELL WESTPAC INSTITUTIONAL BANK

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“While [the criteria] remove some level of uncertainty, the claims-adjustment ratio will need to be determined for each issuer,” Richard Lovell, executive director, structured and asset finance at Westpac Institutional Bank in Sydney, says.

He explains: “There are some qualitative elements to this process which mean some uncertainty will persist. For so long as this is the case for each issuer, the incentive to avoid rating migration as a result of this process will remain. Therefore, I think the bias away from S&P in potentially affected tranches will remain for some time.”

Jacqui Fox, head of securitisation originations, investment-grade originations at National Australia Bank in Melbourne, adds: “The changes are having an impact on the lower part of the capital structure given that S&P has been the agency traditionally used to rate mezzanine and subordinated tranches.”

The consequences in terms of issuer bahaviour may turn out to be long-lasting. “We have already seen issuers adapt to this shift in rating methodology, first by moving away from the traditional A/AB/B capital structure to more granular tranching from AB down – including an introduction of an unrated tranche – and, second, replacing S&P with Fitch Ratings [Fitch] to rate the tranches below Class A,” Fox tells KangaNews.

However, Robert Verlander, head of debt markets securitisation at Commonwealth Bank in Sydney, argues that S&P has simply realigned the approach it uses to assess LMI criteria to be broadly similar with that already used by Moody’s Investors Service (Moody’s) and Fitch.

He tells KangaNews: “One of the defining characteristics of S&P’s RMBS criteria was that they permitted a rating on the most junior note equal to the rating of the LMI provider, while Moody’s and Fitch criteria meant that the most junior note was rated lower than the LMI provider. S&P has now, in a broad sense, aligned its approach with its peers in that less than 100 per cent credit can be assigned at the LMI rating level.”

Agency selectionWhile a new multi-tranche structure is expected to become the norm – in its current form or perhaps with variations – going forward it is unclear to which agency issuers will gravitate to rate their mezzanine and subordinated tranches.

“Fitch has now demonstrated its ability and preparedness to rate across the structure. But with S&P finalising criteria changes we may see some issuers reverting

back to S&P, which has traditionally been the agency of choice in rating tranches below Class A,” Fox says.

There is nothing to stop issuers reverting back to using S&P ratings. “We may see S&P ratings in all rateable notes in the very short term although, with Christmas holidays upon us, this might not happen until January,” Fox adds.

Some suggest issuers are likely to make deal-by-deal decisions about which rating agency to use, depending on individual circumstances. “We have also now seen a number of deals, from a wide range of issuers, which have demonstrated issuers can achieve excellent execution without S&P ratings,” Lovell argues.

For instance, in late November Beyond Bank issued Barton Series 2014-1

Trust and AMP Bank priced Progress 2014-2 Trust, in each case without a rating from S&P.

“This is a strong sign of the market’s development, and probably indicates that issuers would be more likely to consider other rating agency outcomes more frequently in the future,” Lovell adds.

Gary Sly, executive director, structured capital markets at ANZ in Sydney, tells KangaNews there are a number of considerations for issuers when looking at an S&P rating. “While the methodology has been changed, the key now will be the individual servicer rankings subjectively applied by S&P which will influence ratings outcomes. There was no detail of these rankings in the new methodology.”

Volume soarsThe uncertainty around the S&P rating change may have slowed the process of deals coming to market in Australia,

but likely only at the margin and only temporarily. According to KangaNews data, September and October combined saw just A$3.3 billion of securitisation activity in Australia. This period is often quiet, though. While September and October volume reached A$7.5 billion in 2013, just A$2.7 billion priced in the same period in 2012.

Issuance in 2014 rebounded from the slowdown, too. Almost A$4.7 billion of local securitisation printed in November, and December was a record for the last month of the year as a further A$4.3 billion priced by December 16. Total annual Australian securitisation volume, of A$36.1 billion, lagged only 2006 – when A$39.9 billion was issued – as a record in the Australian dollar market. •

“ONE OF THE DEFINING CHARACTERISTICS OF S&P’S RMBS CRITERIA WAS THAT THEY PERMITTED A RATING ON THE MOST JUNIOR NOTE EQUAL TO THE RATING OF THE LMI PROVIDER. S&P HAS NOW, IN A BROAD SENSE, ALIGNED ITS APPROACH WITH ITS PEERS IN THAT LESS THAN 100 PER CENT CREDIT CAN BE ASSIGNED AT THE LMI RATING LEVEL.”ROBERT VERLANDER COMMONWEALTH BANK

8 | K A N G A N E W S D E C 1 4 / J A N 1 5

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TCorp expects renminbi to feature in future funding mix following debutAs the debut Australian sovereign and semi-government issuer of renminbi-denominated bonds, New South Wales Treasury Corporation (TCorp) says it is firmly committed to playing an instrumental role in the continued development of the renminbi market.

Although the deal itself was small in the context of TCorp’s funding requirement, the issuer says it expects the significance

of the renminbi to grow in the coming years. On November 20, TCorp printed CNH1 billion (US$161.6 million) of one-year notes, due December 2015, at a coupon and reoffer yield of 2.75 per cent – three days after the Australian and Chinese governments signed a historic free-trade agreement.

A research note penned by ANZ analysts ahead of the deal suggested pricing – which it accurately forecast –

would be at a slight premium to TCorp’s domestic curve. Although the issuer declines to disclose swapped-back levels, Fiona Trigona, TCorp’s Sydney-based head of funding, says it a achieved a level 10 basis points inside initial guidance. “This was a great result in a previously untapped market for TCorp,” she tells KangaNews.

The transaction has been in the planning stage since September, Trigona adds. “The New South Wales premier was in China in September and following this meeting he wanted a renminbi hub to be in Sydney,” she reveals. “Preparation took a couple of months due to the level of legal and structural work that

had to be completed ahead of time. TCorp was working to a deadline of the week of issuance to prepare for such an issue so that if market conditions were accommodative – which they were – the deal could be launched immediately.”

TCorp expects the renminbi to offer it a valuable funding opportunity over the long term, Trigona reveals. “TCorp was the first semi-government issuer to access the Uridashi market – and this was a market that we continually issued into for many years. We don’t see the renminbi issue as a one-off at all. Indeed, we are committed to developing this market,” she confirms.

Format unsettledIn the immediate wake of the signing of the free-trade agreement, the People’s Bank of China appointed Bank of China (BoC) as the official clearing bank for renminbi transactions conducted in Sydney (see p10). BoC also led the TCorp deal, alongside ANZ.

However, Trigona reveals that the clearing-bank announcement came after TCorp had already launched its transaction – which it did off its EMTN programme. While some “plumbing” is required before such issuance can be settled using domestic channels, Trigona says this is a format TCorp will not shy away from using in the future.

“We aren’t currently in a position to be able to settle and clear renminbi bonds in Sydney but this is because we require the Australian Securities Exchange to ready its clearing facility, Austraclear, to clear these securities,” she says. “This is likely to occur next year, so our inaugural renminbi transaction cleared through Euroclear-Clearstream.”

Paul White, global head of debt syndicate at ANZ in Sydney, is optimistic that the combination of the free-trade agreement and the expectation that Sydney will become a leading offshore renminbi hub will act to pique the interest of further Australian-origin borrowers.

But he also suspects that most of these issuers will need to swap the proceeds back to the domestic currency. This, he suggests, may limit the usefulness of the Dim Sum market – where swap availability further out the curve tends to be challenging.

“I would expect more deals but I wouldn’t expect a slew of them,” White says. “The key is really whether issuers have a need for the currency or are prepared to swap the proceeds – which will depend on funding levels. Most high-grade issuers are prepared to do so if levels are comparable with other markets. While I expect to see growth in activity it is only over time that the renminbi

“WE ARE PLEASED TO BE THE FIRST SEMI-GOVERNMENT ISSUER IN AUSTRALIA TO TRANSACT A RENMINBI BOND DEAL. WE HOPE THAT THIS WILL IN TURN CREATE ADDITIONAL LIQUIDITY IN THE MARKET AND PAVE THE WAY FOR OTHER AUSTRALIAN ISSUERS TO ACCESS THIS MARKET.”FIONA TRIGONA NEW SOUTH WALES TREASURY CORPORATION

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market is likely to become attractive from both a cost-of-funds and a diversification perspective.”

Trigona also says this is a market which TCorp sees as having the potential to develop over time. “We are pleased to be the first semi-government issuer in Australia to transact a renminbi bond deal. We hope that this will in turn create additional liquidity in the market and pave the way for other Australian issuers to access this market.”

Market developmentFollowing the issue of one of Australasia’s most recent Dim Sum bonds, by Fonterra Co-operative Group in January 2014, intermediaries said the extent to which the market has matured in recent years was noticeable. Sources said the market profile was changing – such that Dim Sum issuance was no longer a play on CNH appreciating against the US dollar but rather a true bond market that was pricing for risk.

From a credit perspective, particularly for Asian issuers, the Dim Sum market is now appreciably well-developed, White argues. “Initially the market was more challenging in terms of taking funds onshore. While a number of Australasian corporates may have more of a natural tendency to leave the proceeds offshore institutions will generally have increasing ability to swap them to their domestic currency.”

The triple-A issuer market has advanced more recently, White continues. “The supranational and agency issuers were the first triple-As, but we have seen sovereign and quasi-sovereign issuers execute successful renminbi transactions. Recently we have seen British Columbia and the UK sovereign pricing deals in this format, and this should continue to enhance the market.”

These deals also provided the most appropriate pricing comps for TCorp, Trigona adds. Earlier in 2014, British Columbia priced a CNH3 billion two-

year transaction at 2.85 per cent and the UK sovereign sold CNH3 billion in an October 2017 bond priced at 2.7 per cent.

However, Trigona also points out that there is a significant difference between TCorp and the UK in terms of the destination of the funds acquired. “The UK did not swap the funds whereas, for TCorp, all foreign-currency issuance has to swap back to Australian dollars. This also explains why the tenor of our bond was shorter than the aforementioned: because of where the main liquidity is in the swap market.”

In terms of distribution, issuer data show that 44 per cent was sold into Asia, 24 per cent into Australia, and Europe and the Middle East the rest. By type, banks bought the lion’s share at 56 per cent, fund managers 21 per cent, central banks 19 per cent, and private banks the remainder. There was some scaling in the book, Trigona confirms, and this enabled the transaction to be priced in line with the issuer’s target size of CNH1 billion. •

“WE HAVE SEEN SOVEREIGN AND QUASI-SOVEREIGN ISSUERS EXECUTE SUCCESSFUL RENMINBI TRANSACTIONS. RECENTLY WE HAVE SEEN BRITISH COLUMBIA AND THE UK SOVEREIGN PRICING DEALS IN THIS FORMAT, AND THIS SHOULD CONTINUE TO ENHANCE THE MARKET.”PAUL WHITE ANZ