International law firm Clifford Chance is advising Dubai lender Emirates NBD on the Gulf Arab region’s first potential Chinese yuan bond, highlighting the Middle East’s growing focus on bolstering ties with China, said two sources familiar with the matter.
Emirates NBD, Dubai's largest lender by market value in which the government owns the majority stakes, said on Monday that it had picked banks to arrange roadshows in Hong Kong and Singapore this week ahead of a potential offshore bond; a so-called "dim sum" issue. The lender announced the investor meetings a few days after reports claimed that it had been considering a Swiss franc issue. An official at the bank, requesting anonymity, told Reuters that Emirates NBD had been weighing up both options simultaneously.
There has been consistent growth in bilateral economic and financial cooperation between China and the United Arab Emirates in recent months. Bankers said that such an issuance would reinforce the relationship between the two countries. However, there is no precedence on the reception such an issue would receive in the Gulf. Additionally, currency risk can be a concern. In the first 11 months of 2011, trade between China and the UAE grew to $32 billion in value, up 38 percent, according to Chinese customs data. Chinese exports to the UAE, worth $24.3 billion, dominated this trade.
“The diversification of currency exposure is always a good thing,” said one debt capital markets lawyer, who declined to be identified. “But there are difficulties when it comes to currency fluctuation, and the mitigation of that risk is important to consider as well.”
Emirates NBD has picked HSBC, Standard Chartered, and its own unit, ENBD Capital, to run the road shows, which started on Wednesday, a company statement said. An offshore RMB-denominated bond may follow, subject to market conditions, it added. Emirates NBD would be following in the footsteps of McDonalds, Volkswagen and UK retailer Tesco, all of which have issued offshore bonds in yuan in the last year.
Clifford Chance, which has been active in yuan bond issuances out of Germany, recently advised a syndicate of banks formed by the joint lead managers of Deutsche Bank, Merrill Lynch and Standard Chartered on a yuan bond issue by a subsidiary of German specialty chemicals group Lanxess.
In October last year, the law firm had said that it had advised German company BSH Bosch und Siemens Hausgeräte on the issuance of three yuan bonds worth about 230 million euros. The firm also advised the banking consortium on the issuance of the first German dim sum bond by auto manufacturer Volkswagen.
"While many global entities have tapped the dim sum market in recent months, it remains a new market for GCC (Gulf Cooperation Council) borrowers," Chavan Bhogaita, head of the markets strategy unit at the National Bank of Abu Dhabi, told Reuters. "Should this deal prove to be successful, and attract strong demand, it could be significant in terms of highlighting another potential pool of liquidity for GCC issuers."
Clifford Chance has had an active start to the year in the Middle Eastern debt capital markets, particularly among Islamic bond issuances. The firm said it had advised on Islamic bonds, or sukuk, worth $5 billion in January alone. ALB
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